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tv   C-SPAN Weekend  CSPAN  July 2, 2011 2:00pm-6:15pm EDT

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vote. send my answer to the chair. >> so i'm going to give you 30 seconds. >> ok. a tmb t settles a lot of cases that it believes would not have merit because it wants to have good customer relations and b it wants to save its own cost of litigating settlement. so most cases are settled. i don't know exactly what would have happened if i misspoke by saying that they would definitely get their money back. but the way the system works is it gives them a huge incentive to settle claims in order to avoy the risk to pay a lot of money later. that's why the low you aror courts found that injured parties were much more likely to get scomplensated under the arbitration system than they would in a class action. . .
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the one institution of government which they may not tamper. there is a clear incentive there, and very strong institutional behavior from the big multinational corporations and others trying to deprecate as much as they can to make americans believe that the jury
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system is not a part of their legacy but instead a drag on the a economy and a place where runaway jury is entertained frivolous lawsuits. every american who hears the word "jury" and has the phrase "runaway jury" jump in their mind, every american who hears the word "lawsuit" and has a word "frivolous lawsuit" jump in their mind, has been the subject of indoctrination about this and of public communication. it is happening out there and i think when the supreme court is making decisions that are consistent with that long standing practice and pattern, it is worth our attention and i applaud the chairmen for holding this hearing. anybody who wishes to add information to the hearing has a week before we close it could
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without anything further, we will be adjourned. thank you all very much. i appreciate it. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011]
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>> every saturday in july, hear saw preen court oral arguments on equal protection including sexual orientation and gender and race discrimination. today, the 1982 case. c-span radio,o nationwide on xm radio, and online. >> tomorrow on "washington journal," a look at the latest developments in congress and the 2012 presidential campaign with conn carroll and jamelle bouie. also, a discussion on what is
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happening in egypt and the middle east with samer shehata. later, john celock on his new book. that is at 7:00 p.m. eastern here on c-span. >> sunday, senator mirant paul, one of the founders of the senate tea party talks about the debate over spending issues and the entitlement programs at 10:00 a.m. and 6:00 p.m. eastern here on c-span. the president of the federal reserve bank of kansas city is quoted as saying too big to fail banks puts the system at risk. thomas hoenig made these remarks on the dodd-frank act. this event runs about 45 minutes.
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>> we are halfway through our 1- year anniversary event. it is time for our lunchtime keynote. it is my pleasure to introduce thomas hoenig, president of the federal reserve bank of kansas city and the senior fomc member. he is a person who is rich in law from colorado to missouri. it is a big chunk -- is that the louisiana purchase pretty much? pretty much. dr. hoenig has had a distinguished career with and the bank of kansas.
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he joined the federal reserve bank in 1973 and has been president for 20 years since 1991. dr. hoenig has the legendary and jackson hole seminar every year which we either have i attended or had intended but were never invited. his kansas city federal reserve bank says dr. hoenig has been outspoken about the regulation of the financial industry during the recent crisis. to share his thoughts on why we have not solved the too big to fail problem yet and how we can, i am honored to introduce president thomas hoenig. [applause] >> think you very much for the introduction.
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it is a pleasure to be here. we put the wrong embargo on my remarks today. i am sure you have read it already. because of that, i am going to try to present my comments informally, be sure to leave time for questions. as already noted, we are approaching the one-year anniversary of the dodd-frank bill. given all of the work that has yet to be done and the uncertainties that surround it, i think it would be premature to celebrate, but i do think it is an opportune time to take stock in where it is and what it might imply for the future. i want to congratulate the organizers of this conference. i think it is important and i
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want to note some of the colleagues at nyu stern school because they have done some great analytical work on this and some pretty practical ideas that have come out of that that have served us all very well. as we talk about dodd-frank, the discussion in many ways revolving around the disruptions, the difficulties that we have had, and the distortions that of," in the systemically import and financial institutions, or sifi's. part of the discussion around the title that i have for these remarks was "do sifi's have a future?" that is i think what it is importantly about. as we talk about them, i always try to ask myself some fundamental questions. how in the world could we have
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an investment bank that is of relatively minor importance on a global basis merit a bailout? how can another investment bank with its failure caused its devastation, a collapse of the financial and economic system around the world? how can a large insurance company that has failed to be bailed out and then left in private hands to go forward? finally, how can a country the size of greece hold hostage most sense?world's financial i do not think there are any good answers to those questions. they are very hard to answer. i think they are inconsistent. having these kinds of events makes it inconsistent with the concept of capitalism.
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they have been powerful and increasingly the destabilizing to our economy as we have seen in the recent crisis. they have required special support. they have the availability of different rules. i think that is why we have to go beyond dodd-frank to address this question as we now have a pretty we have to end the artificial complexities that come with these very large systemically important institutions. if we are, that is committed to restore a more stable financial system, one that is more stable as we enter and exit a crisis. now, i want to start by pointing out that i take this because the united states has been one of the most successful economies in history as an economy, as well as creation that it is been able to provide us.
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that is because i think it has been mostly, over its history, bound by the rules of capitalism which awards success but also compels the participants in the market to play by open rules, have a market that is free in the sense of transactions, and compelled to fail when in fact they make poor decisions. that keeps it efficient, vibrant, and renewed. that, in that way, is how we allocate credit in this country to the most valued endeavour's that it made this country great and have built wealth. now, i think is very important that while history has done this, we have changed. in fact, as recently as 1980, in this country, which stowe had a
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40,000 by mental institutions competing across the nation -- in fact, as recently as 1980, in this country, we had 40,000 financial institutions competing across the nation. the largest five of those institutions manage about 29% of the deposit or financial assets among those institutions which was the equivalent of about 14% of gdp. since then, and today, we have a far more concentrated and less competitive banking system as we have seen. there are fewer banks operating in the country, and the largest five control more than 50% of the deposits and assets in the industry. their impact is so much larger. the largest 20 institutions
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control more than 80% of the total assets in the industry and over 80% of gdp, so it is a very different environment that we have. the irony of all of this is that this a very significant change has come from our efforts to make sure that we were able to deal with financial crises without having the consequences of these financial crises. the federal reserve is a product of the 19 07 crisis where we were set up in part to make sure there was liquidity in the market when it was needed as people lost confidence. then we had the deposit insurance come after the great depression to make sure that the small depositor was taken care of so we had a more stable financial environment. over the last 30 years, we have expanded the safety net to an ever larger group of
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institutions and covering an ever larger group of financial liabilities. and, we then, in the late '90s, eliminated the glass-steagall act which separated out the high-risk activities from those activities that were protected by the safety net and created the incentives for the risks that we saw. finally, with those failures during that time, we confirmed for the world that some institutions were just too big to fail, that they were not subject to the same capitalistic standards that everyone else was. in that instance, it was born. it is no wonder that we had this great recession. it is no wonder that the incentives that were put in place and improved the return on equity, the lending practices
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became weaker and we began to trade very significant amounts at the desk, and we increased leverage by almost twice what it was before we had the elimination of the glass- steagall. the kindling was there, and the housing market struck the match. the bailout of the crisis has cost the american taxpayer billions of dollars. that is just the down payment of debt. the 10% unemployment was contributed to by this financial instability and their actions. now, i have heard the argument that we are pushing too hard on capital standards, that it is going to make it competitive in the last of liable and keep loans from growing. my answer to that is pretty much nonsense. i do not believe that.
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one of the things that we know -- i will outline some of those issues in the remainder of my speech, but after the crisis, congress began to how we deal with these crazies, the abuses that took place, but we pulled out the same rules. we were going to enhance supervision and improved capital standards for a while and have a resolution process that is a failsafe or at least make sure they are not too big to fail. but it fills in the most important remedy, the broader stability after the great depression, and that is remedies like the glass-steagall act. there are two principles that i keep in mind when they start talking about the issues. institutions that have access to the safety net should be confined to the core businesses for which the safety net was established. secondly, the shadow banking
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system should be reformed in its use of those activities that also add to the instability. those are the two principles that i think are important as we try and think about greater stability going forward. now, institutions that have the privilege, the advantage of the safety net, should be combined to commercial banking, which is short-term deposit taking and lending, they should still be allowed to underwrite securities, they can do it advisory services and asset management for wealth purposes like trust activities, but activities that would be prohibited include dealing in market making top brokerage, proprietary trading, because you give them these activities plus
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the safety net, you are in hiding and expansive -- you are inviting an expansive risk incentive. i would not allow them to trade for customers' accounts because it would be deemed as soon as it is allowed, all the reasons that you will see given very quickly. these are the activities that are inconsistent with the purpose of the safety net, and we should not forget that. now, critics argue that we need scale and scope, complexity if we are going to be globally competitive, if we are going to take advantage of bringing costs down to make more loans and expand. it is important to have one-stop shopping, it is argued, and that is a part of what we need a very large system if we are going to
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conduct monetary policy, some argue. i think these arguments are unconvincing and i think they mislead especially when they say it will keep us from being competitive. it would be, i think, inconsistent with our 200 years of experience or we have had a low concentrated financial system and one of the strongest economies in the world. the logic of that -- people say it is changed. st. glass-steagall, as we have had the activities with the various institutions could engage in, we had a very successful economy with commercial banking. serving theirks customers, and we were the leader in the world. we issued as much new equity, new opportunities as merchant banks had in europe.
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so, history, i think, suggests that there is a better way without the encouragement of this terrible crisis that we had recently and may have again if we do not correct things. when you go to greater specialization, you serve the client better. it is about the client and the public as well as about the return on equity to the institution. i don't have any objection to return on equity. it is safe and reliable and it does not put people out of work. now, the second reason we have to keep in mind is that the economy's to scale are achieved at sizes are far less. it is clearly, over and over has been shown, there are economies of scale but you do not need to be anywhere near $2 trillion to get them. thirdly, one-stop banking for most activities would remain in
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place under this proposal. now, the trading activity will be out. the customer will be served and those activities can be purchased elsewhere in a very efficient environment. finally, it seems improbable to make the argument that they will pick up the marbles and go to another country. i have to ask that country outside of the united states did they really have the gdp size, the ability to pick up the tab on two big to fail that they might think they are gaining? all countries should be focused on bringing stability to their economic systems. i think the united states has an opportunity to lead in that way. absolutely essential. one other thing that is brought up is concerned about the shadow banking system, that if you push
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these activities into the shadow banking system and that is an area where we have to pay some attention. there are a couple of things we can do. one is a big source of the instability is the money market instrument that was created. it is a major part of the instability. what we need to do is if you are going to be offering those, you cannot have these -- you cannot break the buck. they have to float for the value of the assets. that will discourage the use of those as deposits. it will not into it but it will discourage it. the second of course is the repo market. we have had short term liability issued by secured long-term assets. it is very illiquid when you
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have a crisis. we have to go back to the 2005 poughkeepsie rules where you could grab collateral and liquidate it right away. that will discourage the use of these repos to fund long term assets again. those are a couple of things we can do to address that. now, it is my argument that by pushing out the high risk activities, that will help get them priced correctly and take the risk into that part of a market where it belongs and leave the commercial banks to do what they are supposed to do under a protected banking system -- make loans, make sure the soundness stays in place. we come in the long run, will have a much healthier economic system.
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finally, as a member of the open market committee, of course, i am well aware that there are issues around primary dealers i am told, and the fact of the matter is a primary dealers are the counterparties for most of the transactions at the desk. there are 20 of these dealers. most of them are affiliated right now with commercial banks. the fact of the matter is you do not have to be affiliated with the commercial banks to be a primary dealer or a counterpart. before we had the breakup or the end of glass-steagall and the introduction of gramm-leach- bliley act, we had many institutions that are primary dealers. it is a matter of changing with the counterparty is. i would go further and suggest there are other opportunities to really broadened the base for monetary policy. one of the things that we learned was the use of auction
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term facility which allow you to issue on an ongoing basis through an auction substantial amounts of reserves. you could conduct basically an auction-type open market transaction with a broad base of banks across the united states and you build your monetary base or your reserve base, and then you use primary dealers to fine tune to make sure you get close to your fed funds target. so, there are opportunities from this to expand, if you will, the democracy elements of conducting monetary policy. so there are many opportunities are around restructuring our financial system in a sustained way, in a long lasting way, that allows the safety net to be directed appropriately, to allow risk to go on, the banking
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system to make sure they do not intertwined. i think we would be better off. our businesses in this country would be better served. i am going to end with that, and right on time. i am open for questions or challenges. if i am wrong, i always want to know that. if you are wrong, i always want to tell you that you are wrong. [laughter] thank you. [applause] any questions? yes? >> [inaudible] you describe a scenario where there is coming over the course of 20 years, massive concentration in the financial space, yet you didn't explain why that might be the case. do you have any thoughts -- assuming you are not alleging
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this behavior, how is it that those banks got to be the size that they are? did that say anything about the natural state of the market structure? >> there will be a couple of arguments for that. at the first is prior to that time, you had limits on interstate banking. those limits were removed which was a reasonable thing to do i suppose. the second thing was that there are these economies of scale. at midday, there are economies of scale. they are captured usually -- the research shows they are captured well before the size that they are. the third reason is that if you are perceived, and then it is confirmed that you are too big to fail, then you have a capital cost advantage over other institutions.
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you can see it if you are a regional bank of only $15 billion in size. everyone knows that if you fail, you will be taken over. they will wipe out the stock. many of the uninsured depositors may be losers in the transaction. where you go is where you think that is not going to happen if you are a company that is large enough to have that kind of a deposit. what that has done, and there is some research out there -- there is a clearer suggestion that that means their cost of capital is lower. if you want a lower cost of capital in your expansion efforts than anyone else -- the fact that you can raise deposits more easily, the cost of capital was last, and you see that if you look at the leverage ratios of those larger institutions as
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they change from 1990 through the crisis. real equity i am talking about here, not the made up stuff. obviously, the market was not paying attention to that because they knew they would be bailed out. actions that the government did and others took confirmed that. that is a huge advantage. i think that is hard to dispute. that is why i think it has been as rapid as it has been. >> [inaudible] >> it is such a convincing argument, isn't it? go ahead. >> my question is about repos and money markets funds and
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thoughts for reigning in those sources of instability. it's strikes me there is a cycle here [inaudible] -- that has hidden risks or systemic risks. people go complacent. that might inhibit their adoption. after a while, it does not really matter. it is that evolution of complacency that i see as being worrisome. i wonder how you deal with this potential in your frame of things for affectively finding a way around the banking
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regulatory system. >> there is no perfect solution, obviously. the first thing i would tell you is having money-market instruments where you have this dollar protection and it is treated like a short-term deposit is a flaw. if you have been reading the paper lately, you know how much everyone is worrying about the money markets again right now as they invested in higher risk to get their yields up and so forth. the person holding that instrument since then have a deposit. when they get doubtful, they are going to run. you have to eliminate that. will something else emerged? perhaps. if you split this from the commercial banking industry so it is smaller and focused on lending, and this non-bank entity -- you will at least
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mitigate the likelihood of that, mitigate the likelihood that it has to be marked on a daily basis, people will pay more attention. therefore, he will not have the buildup of the access to the extent that we have had. that is part of what you have to think about the shadow banking part of the system and be aware of what might happen there. do not do things that encourage it. having the market give special protection, i think, was a serious error because it caused people to have a false sense of security and it fed the idea that you will get bailed out. that has to stop if we are going to have any kind of real capitalistic system with a more effective market discipline to it. you can say what you will about the dodd-frank bill and
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resolution process. i would hope that it would work. but it would be the first time ever. i cannot imagine a working because i know what that friday afternoon is like wendy liquidity crisis is upon you and the asian markets open on sunday night. it is hard to go through all the steps with dodd-frank. i would not want to be the secretary of the treasury to see the world melt. you have to see it well before the crisis to put in the stops. that is my point. yes, right here. >> two quick questions. by the do not know if you are familiar with the research of one of your colleagues. the research is much more robust on the advantages, and it has been quantified in a number of ways as well as the nonsense
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issue if we raised capital standards. i would encourage you to be stronger on your assertions because of the research. i do not know if you heard this earlier but there was a discussion about that which is policy-optimal and politically possible. i lived through the possible and in possible on the hill. many of the things that you are talking about attempted to get on the floor as amendments. the few that got up got very few votes. senator durbin was referring to washington, d.c. whether that is true or not and whether or not you agree or disagree with what he suggests, the question is how do we get from where we are to where you think we should be in the current political environment
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quest toward how do you make that happen? how do you see it happening? >> well, i thought a lot about it. i think it is possible or i wouldn't be putting my point of you out so strongly. but i do correspond with her. i think she has done some great work, as her colleagues have and as you have done, that the capital issue is, it is almost propaganda in terms of what the impact would be. because the stronger and safer the institution is, the lower the return on equity needs to be to draw the capital. before that a group of capital seekers, and so forth. so what you are trying to do as manager is take advantage of the environment you have been given, the return of equity and in your bonuses up. that is human nature. i think she has done great work. i think it was reviewed in this idea that somehow we will not
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have growth in this country. we have a lot of the institutions with never strong capital and you always do better when you are working from a position of strength, in terms of decisions and allegation -- allocation of resources. i hope work continues. the second point is -- yes, it is difficult. and it should be difficult because you have different parties. one of my concerns when i do read the concentration issues -- these institutions are far more powerful today than they were just 20 or 30 years ago. i didn't put in these remarks but it is a fact that when the federal reserve was formed -- remember, j.p. morgan -- and we can have that. the five largest at that time controlled and assets of 2.5% of gdp. i am not so worried about that. but now it is over 60%. now they are more important than ever and i have seen the size of of their political
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contributions, or whenever you call them, and they are dramatic. a very significant. so, they get a lot of hearing on that. but there is a way -- because i have seen it, where i find that whoever it is, they do want to hear what you have to say. and if they are willing to listen if your point is cogent and you can demonstrate it. you can't just assert. in fact, one of the reasons why we put out a white people -- white paper on how to do this. nice in theory, but how we do it? we say, here is how it works. talk to them one at a time. and if you think about it, if it is in the best interest of the economic system of the united states and the growing of businesses and creation of real wealth across the country, and you make that point, the
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research they are doing, then it becomes a more powerful argument itself. i think there are a lot of businesses, they are all tied up in their daily activities but when they hear this and they begin to think about it, they become an important part of support. glass-steagall, who would of thought? and we did get it. >> john -- from penn state university. i have a question -- if you look at the shadow banking system it seems there at least three legs on the stool, not more. you talk about money market funds. you talked about the repo market place. but you didn't talk about the securitization market place. i was kind of curious if you left it out intentionally or if he had thoughts about that. i have done some interviews with folks up and down that arena to try to understand more
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about the dynamics that were happening. it seems like there is kind of a natural story -- i am not a statistician but and economists so you have to accept my shortcomings. but my sense is banks -- loan institutions create loans. they have reserves they can loan against those. but they can take them off the ballot she. they get put any special purpose vehicle which is not any size, and there is a market based capital requirement that goes with that that is much lower than what the federal reserve has controlled with with the institutions and the safety net, and essentially the assets are put either on the short term, to paper market through sips or the pension she balance sheets, said representative. one of the interesting things we found is part of the dynamic, despite the capital requirements, is at least in the housing market, the advance in technology -- loans could be
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created, put in the special purpose vehicles and passed on, accelerated of the process. we saw a building up of the asset bubble. almost a monetary policy question with the wrong phrasing, but it seems like to the extent you have reserves creating assets and the speed at which they can create assets, it seems like that is and in ports of thing to consider reforming also. -- it seems like it's an important thing to consider reforming. you think that is it can't -- substantial concern, and the ability of the fed to maintain the stability of the economy? >> i think you make a good point -- to just directly answer your question, i think it is an area that needs and deserves more attention. it is not in our white people -- white paper, but i do think it is important.
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dodd-frank has something -- a certain percentage move off the balance sheet. so, that is an area i think we probably should pay more attention to as we move you are right, if that becomes the vehicle -- but there are a whole host of other things around that problem. the bad ratings system, phony off balance sheet instead of real off balance sheet. that is why the capital requirements, i think, were less, because everyone had a kind of wink and a ninth that we will provide a bailout as an institution -- a wink and a but i think in a systematic way we need to address that. i think it is a good point. morris? >> tom, you made the case of why to big to fail is a problem.
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but in talking about how you discourage or stop it, at least in the oral remarks you put emphasis on bringing back glass-steagall. what about size caps? if you are worried about size, that is the most direct way and you could argue well, even with glass-steagall you could get mergers, very large institutions, $2 trillion. they could lose their money on cni loans rather than investment banking. what about size katz, 3% to 4% of gdp, and that half a dozen u.s. institutions would be already above the cap and would have to come down over some period. you also have much bigger capital surcharges than what was agreed to over the weekend. that would be another way to i am just curious as to why he chose the glass-steagall route as opposed to the other routes
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for discouraging to big to fail? >> we did it and think about size. but part of what we thought about its size it isn't really the factory -- it is one of the factors, but not the primary factor. it is the nature of the risk -- whether you are bear stearns -- which probably wouldn't have the -- have been caught underneath the size limit. it is the nature of the risk that you are bringing on that gives us pause. second of all the digging -- if we could give them marginal capital requirements above, i think that could be fine but i don't have any faith in it at all because it will be coopted within three years of the recovery. for example, the resistance to
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7% equity it for a tier one equity and then adding on to that. once the economy and the institutions are supposed to be sound again, we will start eroding the capital requirements just like we have in every instance in the past. so i don't think it will last. but separating out the nature of the wrist diving will give you a more stable economy over time and you will be able to enforce the rules more clearly. one of the difficulties in terms of supervision of these is it is so horribly complex their directors don't understand it, their management don't understand and and the supervisor can't deal with all of the issues. so you have to simplify the system. then you can have capital standards that are enforceable over time. and i think your long run outcome will be better. size limits is another option but i don't think it will be
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taken very seriously. ken? >> tom, i was thinking about what you said about the friday night challenge. the classic example -- push comes to shove. of the problem i have with their description is, i could see the same thing happening for the non-ring fenced institutions. even though they are not banks, they could be systemic in another way. well the treasury secretary pull the plug? if not, don't they have the same problem we have that with the current system? >> that is the risk. but if you have them separated out and you don't have and there isn't confusion with a safety net that has been, then i think their capital standards -- the market will demand more and the market will pay more attention to it because if you subject them to the real
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bankruptcy laws, then it becomes a greater risk to those creditors that are outside. right now the assumption is, because you are tied to the safety net, the safety net will because the impact on the primary financial institution will be the main concern and can't take any chances of you bail out over here. that is why the one to limit their ability to do it. that is what is behind that. understand, i am not saying crises go away. i am not saying risk of goes away. i am sending it gets better allocated, better price, and therefore we can handle the crisis that will inevitably come, more successfully, without a 10% unemployment rate. i am not thinking about the 800 billion -- and we will get a good part of the back, and we will already lose a fair it bothers me that speculators were able to go in knowing the
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institution would not wipe out or we would not wipe out the common stock holders, that speculate and make a ton of money off of the taxpayer. that bothers me. and i think we can do much better than that. yes. >> yeah, i hear what you are saying that maybe there are no size limit on bank, but the nature of the business might force them to downsize. there was a trend in the 1970's, 1980's, and 1990's, that banks were having a hard time getting a good price on a loan for big corporate -- exxon, wal- mart, target. if you are causing the banking system to sort of reduce its size, do you need that in the real economy, too? and if it doesn't happen, are we back to the problem in the
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1970's and 1980's, banks did not make money lending to big corporate soap that is what -- why they wanted the expanded powers, to catch up. >> i heard that argument. i am not convinced of the argument because you have this desire of the non-banks to get to the banking business. they thought they could build their return on equity that way. i think there was an ability -- consortiums for large industrial companies, that you could get the loan out. so, i don't see that that is necessary -- necessarily what follows. and if you have a strong capital, you have the right size and you can do consortiums, you can fund just about any loan because that is how we pretty much did it for decades. i mean, i did not see the
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evidence that the suggested to me that they were being disadvantaged that much. now remember, part of the issue is -- and they made this statement before publicly -- if you are too big to fail, and if you have access to almost an unlimited safety net, you are a gse and a gse should have lower return on equity. it still brings capital in. and you can still make loans. and from a position of strength even make sound loans. will the corporation go somewhere else? yes, if you allow money market and other kinds of activities that are high risk. and the perception is they would be bailed out. then you will just transfer the problem. >> but if you have banks that are 15% or 20% of credit card lending or mortgage banking, those of core banking activities. that is ok as long as everyone is doing their job? stakeholders, rating agencies,
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investors. that is okay? but with -- combined with specter to purposes that is when it's out of control. >> not only combining but when you give the state collective activities a safety net so i can gamble. look, if a large bank or any bank can make $100 million offer of a trade, guess what? they lose 100 million of of a trade -- even though they say they can't because they are perfectly hedged. >> jimmy diamond should agree with you, if he wants -- jamie dimon should agree with you on this. wholesome american business. >> i don't know about wholesome. [laughter] i do know there are certain acts in this commercial banks can do well and should do well and i think the market is there is to define at that point. i don't want and using the safety net to build their
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reserve that the date then trade on one aspect of basis to make their earnings. >> now that we have the volcker role we should be getting it to the that. >> we are already gearing towards it but it is already being gamed to death. we will see. >> i am a reporter with "huffington post." my question is -- when you talk to policy-makers in washington about the market concentration, you point to the top four or six. they say, well, it is not like it is in the u.k. or in switzerland. it is not that concentrated. double the size of the economy. i am curious to know why the current level of the new -- in the u.s. is dangerous. what is the counter of the argument that it is not as bad? >> not as bad is not my standard. [laughter] we have had -- the u.s. economy has been the most innovative,
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has -- if you look at our history you have a distribution of financial institutions similar to the distribution of industrial companies. and you can meet the needs either at a local or national level. now we are concentrating it increasingly where the small business and the community has to have some way to deal with this very large institution because that is soon become their only choice. that is the mechanism in europe. it is not as innovative as in the u.s., at least historically. we have a strength here that we are saying -- because europe has done that it means we should give up our strength? i don't think so. it is a fact of life. i mean, i talked to firms that have been pretty much told by some of those largest most powerful institution words like, why should we make this along to you? -- this loan to you?
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convince me. when you have a locally-owned there is a mutual gain because the community does not do well unless that -- that institution as well. we ought to play to our strength rather than see it go away because it is not as bad as europe. it just not a good reason. honestly, it is just not a good reason. thank you all very much. >> now we will hear from neil barofsky on lessons learned from the financial crisis. this is about 40 minutes. >> -- which i think is pretty unusual. a university of penn alum
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who graduated from new york law school in 1995. i cannot believe that. is that right? my god. during his time, 18 criminal convictions which sank is 98% of the criminal convictions that have fallen out of this crisis. as far as we know, the only one i know of is bernard madoff, so you are in good company. [inaudible] >> i am good at improvising. >> i think a good place to start would be to ask you what your brief was at tarp where you were responsible for overseeing where the dollars of floating or the policy -- >> we had a very broad mandate.
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when congress enacted the emergency stabilization act to spend $700 billion of taxpayer'' money, or to borrow $700 billion, to bail out the financial institutions, as part of the compromise, and number of different oversight bodies were created. one of them in the executive branch was the office of this special inspector general of tarp. the mandate that congress gave us was very broad and created two different missions. the first was law enforcement. we became the country's newly created law enforcement agency. we had full law-enforcement powers. guns, badges, we arrested people, like a mini fbi with jurisdiction.
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the second part of our mandate was much broader. it was an oversight transparency reporting function. we were given the authority to audit all things that happened under the tarp and all actions taken by treasury but also with quarterly reporting responsibilities to detail everything that was going on at tarp and the alphabet soup of acronyms as well as te requirementshe go back and look at the decisions made to make recommendations -- as well as to go back and look at decisions that were made to make recommendations. that was how we operated on those two fronts. we were a brand new agency. we built an agency around these
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two functions to carry out that role. >> when you look back on the crisis and how it was managed with resources, were there any things that stood out as being good about how they were deployed or lessons to be learned? >> it is like anything. in washington, i think, there is this incredible political rush to put labels on whether something was successful or unsuccessful. you will hear administration officials tell you that tarp was the single most successful program in the history of america, and then you will hear opponents talk about how it was the worst thing that ever happened. the accuracy lies somewhere in between. i think the political noise that is around of the tarp -- you have to go back and look at what was the program supposed to do.
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what was the intent of congress and the treasury as they announced the program? when you look at that and go through those different goals, you see that some were met and some are not. for example, preventing clinic to armageddon which is the goal that treasury points to as being a successful program, i personally feel that it was without question that this was successful. it may have created some negative longterm consequences, but in the short-term goal of pulling us back from an abyss, there was some degree of success. other goals were butter failures. for example, when the program shifted from what it was originally supposed to be as it was sold to the american people to go and buy troubled assets into a world of capital infusions, it came with the promise that it was supposed to
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restore increased lending. this may have been an unrealistic goal, but nonetheless, that was the state of policy and that did not happen. lending has contracted in it 10 last quarter's per the >> why was tarp extended to banks without any conditions? no conditions were imposed. it was that wise? >> i think it depends on what the >> it depends on what the policy goal is. the stated policy goal was not just to prevent financial armageddon. the stated policy goal was to take tarp funds and give them to banks to restore lending. having those strings attached release sealed the deal of having it be an unsuccessful policy. along with the assignments of those funds. it would not have to be requirement, he mandates. here are these funds that we are compelling you to take, and
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by the way, you need to lend this percentage to businesses and this percentage to families. that would not be a very helpful policy mechanism to accomplish that goal. but it could also have been done through incentives. if the tarp contained shares of the treasury estimate could have been built around incentives. so that increasing lending over the baseline would earn the bank a better dividend. the second problem is the lack of transparency. this policy goal was set forth, but when i came to office, and it was literally a week after i got there and there was a recommendation that there be a mechanism so the banks can report how they are dealing with the fund so that we can measure qualitatively and
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quantitatively to see how this goal is being carried out, there was a lack of a mechanism. maybe we could adjust those policy mechanisms. it was utterly rejected. i was told that i was out of my mind and i was going to destroy the country and the banking system. it was a lack of accountability. >> so, a lesson learned there. >> i think so. if you are going to have a policy goal and you are one to state your credibility on that policy goal, which is what treasury did, -- treasury came out and said, listen, the reason we will be shifting gears and not buying troubled assets, which was very important in the compromise legislatively in getting this passed. they had to have a justification for it. the justification was to increase and restore lending. if they did not have a policy mechanism to carry out beckel,
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-- to carry out that goal, you need to have those mechanisms next time and maybe you need to be a bit more careful about what the policy is to justify the behavior. >> as dodd-frank was passing through the legislative machine, how you think it was influencing things? >> ultimately, not as much as that should have been. we often hear statements that dodd-frank had its part in the right place, and i think it did. -- it's hard to in the right place, and i think it did. -- its heart in the right place, and i think it did. the president said, never again will we have to be allowed a financial institution. and because of tarp and the deep unpopularity of tarp, in some ways, i think, is justified -- it justified tarp.
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in many ways, it has not have the courage to justify that goal. the regulators, even if they have their hearts in the right place, will they have the regulatory and political will to do what is necessary to truly rein in a guarantee from the largest financial institutions? it is extremely unlikely. >> that is depressing. [laughter] you mentioned to me when we were talking earlier there is a lot of resistance to transparency in treasury. would you just say if you have a policy goal, you should try to measure id? -- it?
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why do you think in the treasury's case that transparency was such a big issue? >> this has come up in general earlier as well. the reflective antipathy toward transparency among the regulators. you saw this not just at the treasury, but at the federal reserve. john mentioned this this morning. every attempt at transparency was met with the same "the sky will fall" mantra. it is not that we thought it was a bad idea or maybe we should think about this in more detail, but over and over again it was going to armageddon. you may remember when the vice chair of the federal reserve board suggested that the closing of the main facility where the federal reserve purchased the underlying cdo's on the credit default swap --
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not the real ones, but the synthetic ones that aig had underwritten. this was so deposed -- opposed on the grounds that it would destroy aig. ultimately, the information was disclosed and nothing happened. what happened was that we had accountability and we can go back and look at the decisions that were made in connection with the bailout. the times said it was unpleasant for the fed, i think -- at times it was unpleasant for the fed, and i think it caused some of embarrassment. but it did not cause damage to the long term economy. i was told point-blank that i was going to destroy the start program and, perhaps as a
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result, destroy the banking program. and of course, that did not happen. i think the banking institutions were afraid to do a rather easy and simple qualitative analysis of their capital. i think they probably should not be the recipient of any capital. i hope the lesson will be the there will be a less of a reflexive position that transparency is bad. by the time i left, the conversation -- the last audit i did was on citigroup and there was tremendously less of a battle to get that information out.
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of course, there are times when disclosure can be problematic, or to giddily in times of distress -- particularly in times of distress. hopefully, we have helped to break down a little bit. -- break it down a little bit. >> i do not remember quite when it started. did it start when you arrived or the day after? >> the day i was sworn in, which was december 15, 2008, by secretary paulson. most of my professional career was as a federal prosecutor and most of my interaction was investigating bank fraud or
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investigating the general use market, but not understand in the auto industry other than the car i have. secretary paulson, it was one of the first things that he asked. we are thinking about investing in the auto industry. what you think? i think i mentioned my camaro. the decision making process was well on its way. the first question i thought of for my perspective was, ok, i have this new job and i have a staff of one sitting in the basement of the treasury. i have no stationery. but i have a computer. first we will just look at the statute and see if it is legal. at first look, how could tarp be used to investing in manufacturing company?
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it was sold to congress as managing mortgages and mortgage- backed securities, but it was written in a way that was so broad that the money could be used to invest in any regulated company in the u.s., essentially. we did that first quick check and we saw that we did not think it was going to be illegal and we went to work on some broader anti-fraud recommendations rather than anything else. that was the initial recommendation by the paulson treasury department to keep them afloat. >> when you are reviewing the statutory language, does that make you -- i find it is very broad. does that make you comfortable with the kind of bait and switch that the treasury has
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been accused of, going from toxic assets into bailing out institutions? >> i really think it was not a bait and switch. i think that would be an unfair statement, for no other reason than it was something that not every member of congress voted for, but some certainly did. many in leadership anticipated this when their caucuses did not. that there was going to be a shift in focus. while i have some sympathy for those members of congress, more from my perspective of where i think there really is a potential acquisition of a bait and switch with the promises involving the foreclosure crisis in housing. because those members, or to italy in the democratic house caucus, and very particularly -- particularly in the democratic house caucus, and very particularly in the cdc,
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their perspective was that $700 billion in mortgage-backed securities were owed to the investor. the concerns of these members of congress were in their constituents who were feeling the ravages of the foreclosure crisis in late 2008. that is where you have the biggest sense of betrayal because once there was a switch into audio companies -- is which into investment into auto companies, the big question is, did that work? i think that is one of the mainstream failures of of the tarp. >> why don't we open it up for questions?
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i will ask one more to give people a chance to think of something provocative. you have been listening to the presentations here today. how comfortable are you, given your experience at tarp and plinking about dodd-frank that we are on the right road? i'm not sure that a proper frame has been put around shadow banking. >> when you look at the mechanisms of dodd-frank and you see some of the people speaking here today, you are certainly struck with some remarkably intelligent and deeply patriotic people. it gives you a sense of a good
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feeling. but ultimately, one of the failings of dodd-frank and one of the concerns of the shadow banking is that ultimately whatever work they are going to do is going to depend on the political process. i think that dodd-frank really politicizes the vocal will and a more -- the volcker rule and is more through political pressures. also monday, the decision maker for all of these decisions, the person invested with the most -- ultimately, the decision
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maker for all of these decisions, the person invested with the most power is the chairman of the treasury. and that person is going to be moving along with the administration in the next election. when shaheen as the question earlier how to president hoenig how about whether we should be concerned about the financial system because it is not as bad as europe, i mean, he was quoting secretary geithner. i agree that is an awful analogy. that is a terrible cold. why should that be the standard for the u.s.? but that is the person who will ultimately be responsible for making the tough decisions. >> coming your way.
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>> [inaudible] come back to the original decision to switch to the mechanism which was the original trial of -- betrayal [unintelligible] with the first approach have been feasible and with the blessing of hindsight, would it have been better to do that? because the fallout of not doing it was enormous. >> look, in certain aspects of it is my job to second-guess and use that 20/20 hindsight. i have never been critical of
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the move to shift to capital assets. buying toxic assets at that point, it could not have worked. it was not time for it to work. it would have had the unintended consequences of write-downs for the financial institutions. that was not a viable alternative at that point. the capital purchase program was instrumental in avoiding a collapse. i do think where there was a vitriol was the promise that
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tarp would be used not just to rescue the wall street banks. with absolutely benefit from a street by the stabilizing the financial system. but the legislative process that got us to pass tarp was meaningfully addressing the mortgage problem. that target was shelved. and in february 2009 there was an execution of a policy that has been, in my view, a failure. >> [inaudible] >> could have done a better mortgage modification program? i think they could have from the beginning and they could still today. do not take my word for it. take secretary geithner's word for it. the home modification program
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was announced in february of 2009 with the hope of helping millions of families to stay in their homes with the permanent modification of the fannie mae and freddie mac fund. secretary geithner testified and relief echoed -- relief echoed what had been set for about a year. lyttleton nothing has been done to address those problems. -- unfortunately, little to none has been done to address those problems. >> [inaudible] of a few key individuals. the foreign exchange, it is likely to be exempted from the clearinghouse, and so on. and i think it was a decision that was left in the powers of the treasury. i was hoping there would be a
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report for a steady on the basis of the financials provided. i -- or a study on the basis of the financials provided. today, it is possible to do some significant mortgage modification activity. do you think is on the table? do you think it might happen at all? the housing cycle has not release started. >> -- really started. >> i think we took the worst out possible. one suggestion is that we should have done nothing and let us find a bottom on housing as quickly as possible and then hope that we would not drag along they're too often and recover.
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for really commit the resources to try to have an impact. -- or really commit the resources to try to have an impact. and when i say impact, not kicking the can down the road and stretching it out. that is where we are, we are effectively kicking the can down the road. we took 800,000 people and give them false hope and then flush them out, vs 600,000 who have had some benefit through a program modification. but that is the proverbial drop in the ocean. we are essentially playing this out in this process and not recognizing the losses for these mortgages that are in default or heading toward default. for encouraging industry practices that extend that. -- or encouraging industry practices that extend that. there was one moment of real honesty and clarity that may have been reported in the huffington post. there was a meeting of bloggers on the internet and there was the idea of, look, it was an idea that was extended and then
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the bloggers never looked at it again. >> dennis. >> i first want to say thank you because i do not think anyone will ever know of the enormous pressure you were put under. there are very few government -- individuals in government that were put under the pressure that you were put under. very few individuals in our history that would not crack under that kind of pressure. it is quite an amazing feat. the way to really understand the accomplishment is to be reminded
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that -- i remember the day when the three-page bill was sent up from treasury. it was the first drafting of the bill. it had a complete blank community for anybody for anything that they did in connection with the program that became tarp. it also prohibited legal accountability and oversight. of what happened is that -- one of the good things that happened is that in exchange for allowing tarp is that you, and, and some other oversight -- we did not know it was going to be you for oversight. but it changed to at least to some accountability. the context of the -- the whole program should be understood in that context. there are many members of congress that did not believe that it would ever work fast
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enough. we forced it on the administration to allow capital injections. the hearing on this bill, the administration said, no, the world will end, everything else. the cause was forced the provision in there and forced the ability to make capital injections. and i would only have a slight modification to your comment of white people felt it was vague and switch. it was not just foreclosure. -- of why people felt it was a bait and switch. it was not just foreclosure. the only time they got religion on putting any terms on the money is when they could-the auto companies were the unions. but they did not apply -- when they could bash the auto companies and unions. but they did not apply any of the stringent requirements on the automakers, not one. it was money for nothing for the bankers. >> when you look at the
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dichotomy, i think it is saying two things. one is, they were afraid that banks were not going to participate. looking back on it, that almost seems laughable. at the time i kind of thought it was laughable, but that does not make their sincerity any less. they really did believe that stronger conditions would drive banks out. notwithstanding the remarkable response they got. they were prepared to repel. they did not have to because the reaction was, we are in the middle of a crisis. of course we are going to take it. there was almost a naivete about the banks. i came at this from the opposite position.
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i have a history of seeing the banks as the perpetrator of the crime. i view my role as traditionally been an antifraud guide. i cannot tell you how many times we would be having discussions about this program or that program or that program and i would get the response, oh, you do not understand. these are banks. they would never risk their reputations by doing something like this. this was a constant argument. maybe six or seven months in i finally said at a meeting, please do not ever say that again to me because it is not going to work. you are talking about changing the shameless in some respects. -- shaming the shameless in some respects. all of this anchor that comes out, it is almost at the -- all of this anger that comes out, is almost in that the
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administration and the banking industry because there's a sense of betrayal. >> i have a question about your activities. presumably, you went and looked at how the banks were using this money. a lot of the story of this particular crisis traces back to underwriting standards, which in many ways were outsourced to non-banking entities, mortgage brokers, etc.. i assume there is fraud on multiple levels and there are stories that bubble up around that. did you ever get an opportunity
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to go beyond those institutions into the relationship, that long web? in some instances we did not have the fed doing what they should have been done in terms of oversight in that arena. did you have that mandate? did you follow-up on those threats and learn anything interesting? >> unfortunately, this is just a trail for me. under the toxic assets -- toxic assets program, that would have given us authority to investigate all the way down to the roots. we would be basically buying these mortgage-backed securities and we would be looking at the underlying fraud. but we did not do that. one of the reasons i was hired was not because of mine at our team's skills. it was because i did eight years of mortgage fraud and securities fraud prosecution. that would have been an opportunity for us.
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it is the reason that some of us were calling for the department of justice has a specialized law enforcement agency that looked at crisis- related crimes. for us, we also fell outside our jurisdiction because unless there was an intent to capitalize fraudulently on the chart program -- tarp program, it was outside our jurisdiction. other than that, we did not have an option. a lot of our fraud investigations were based on misrepresentations made to the treasury in order to get tarp funds. those first nine banks, i did not matter if they were cooking the books on the balance sheets. treasury was giving them the money and how. in fact my if there were larger holes on their balance sheets because of fraud, that would have been more reason for the treasury to give them money because it was a schear bailout. -- shear bailout.
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>> getting back to the fact that tarp did not really deliver for main street as intended, basically, i guess it was last summer, secretary paulson as for his and the -- ask for a bazooka. shortly after that, the american public wanted extenuating support with the fdic, preferred investment, and more tarp and reece sentencing of assets for your stove. -- a year or so. whenever secretary paulson -- what ever secretary paulson said a week ago or a year ago,
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it was hard to keep track of. >> first, the whole idea of using tarp for foreclosure relief and modify loans, that is not an idea that it originated from the treasury department. this is something that congress wrote a section into the statute that actually dealt with how to modify mortgages once we own them. and i think that the fact that the trade changed, while it is certainly an investment -- an indication, it is not a justification. it is not as if they did not have enough headroom because it is not as if they did not have enough funding from the tarp assets. there certainly was the room for it. i know that during the timeframe of transition the bush administration and the
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paulson treasury department were working on foreclosure ideas. they knew very well that this was still part of the product. and ultimately, after the election they were asked essentially to stand down by the obama administration saying, we do not want to inherit your program. we do -- we want to launch our own program. and then they did. they committed a nice chunk of funds. this was to get the second half of to our funds -- of tarp funds. this was barney from santa might
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-- barney frank saying, you need to release more funds. it was a very poorly designed and poorly executed program. >> i am from the university of texas law school. if we had done foreclosure, at least for bankruptcy, do you think that would have worked better than trying the program? >> cramdown was outside our jurisdiction. to be honest with you, is not something that we really studied or worked on because it was outside the scope. i think the concept of silver reduction, i am not as afraid of it as many are. a good principal reduction program could help affectively achieve the tarp goal of
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sustainable mortgage modification. i think it was sustainable and the moral hazard for the homeowners would not be where they are. >> if you had your druthers, and you think you could do it by just addressing the banks, or do more of the others have to get it right to have a stable system in the future? >>, two things we are doing with dodd-frank. i think that the local is probably a lost cause. you hear every day that as much as it has weekend before cannot -- it has weakened before, you know, i think it is not a perfect solution. but hopefully it will be done effectively and there is a significant enough capital
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surcharge. it will lead least hopefully provide more of the necessary cushion. i do not have a problem with it if it is penal. i think incentivizes them to become smaller. but if there's any chance to address the sale and the implicit energy, i have to be done through the will. -- it has to be done through the will. that is something that dodd- frank has put a tremendous amount of power and authority in. the treasury has a wide landscape of different things they can do to make sure that these things are resolvable. for me, that is the only way you can deal with the implicit guarantee, by convincing the markets of the government guarantee. not just to allow the largest institutions to fail, but more important, to demonstrate that it could fail without bringing
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the entire economy down with it. there are lots of good ideas that can be adopted, but -- and here is the big "but." the political will has just not been there. she lived there has been a strong advocate, and has just said that -- sheila bair has been a strong advocate. i have never heard anyone in her position so strongly take those concerns, and as we all know, she is gone in a couple of weeks. >> thank you. [applause]
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>> tomorrow on "washington journal," a look at the latest arguments in congress and the 2012 presidential campaign. also, discussion on what is happening in egypt and the middle east with samer shehataa. later we will it scuffs john celock's book. that is at 7:00 a.m. eastern here on c-span. >> sunday, center rand paul, one of the founders of the tea party, talks about the debate over raising the debt ceiling, spending issues, and entitlement programs. that is at 10:00 a.m. and 6:00 p.m. eastern here on c-span. >> every saturday in july, hear the stories a supreme court oral
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arguments on c-span radio about 14th amendment cases on equal protection, including sexual orientation and gender and race discrimination. today, the 1962 case women versus hogan. also on line at >> thursday, french president nicolas sarkozy proposed a plan to promote research,, and technology in france. the french president is up for reelection next year. he also announced a deal with french banks to give reece more time to repay its debts. this news conference runs about 80 minutes.
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>> let me thank those who bothered to get up. thank you. and for those who did not bother, that is all right. mr. prime minister, ladies and gentlemen ministers, on june 22, 2009, in front of the congress in versailles, i was announcing that france is about to launch a plan in order to finance investment for the future which is needed in order to guarantee future growth. we were facing the worst economic crisis the world had ever known for a century, and the response to this crisis was mobilizing all the governments in the world, but it was not enough to prevent the collapse of our banks, the collapse of our economies. it was even more urgent for the future to give us the means to hold are ranked in the world and to combat the crisis.
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i was wondering if all of us really appreciated the gravity of the crisis that the world had just gone through. i know that yesterday's news is old news, but the crisis was of a gravity which has no -- a crisis told us that we should pursue reforms and invest. the figures are eloquent. for the last 30 years, france has never had a balanced budget. the deficit and the debt got worse and worse, and at the same time, the level of the administration's investment had never stopped declining.
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the level of public investment went from 12.5% of public expenditures in 1974 to 7.5% in 2007. the truth is there and we have to face it. our deficit is first and foremost used to finance current expenditures at the expense of investment. that is to say the expense of the future. for the last 30 years we have filed a deficit and a share investments went from 12.5% to 7.5%. this figure says to me that it is a good illustration of the path that we must take an the path that we no longer must take. we have to relaunch investment. this is a priority. besides, our universities would never have been autonomous if we had not given them the means
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that they need. this is what we call the campus plan. what would be the efficiency of our effort for public research. it is the research tax credit grew would not have a green economy if we had not started with the environment. the program of investing for the future that we have announced by the prime minister in 2009 represents an effort to the tune of 35 billion bureaus. -- 35 billion euros. france has made such an effort for investment. france has undeniable assets and a spirit of enterprise, modern infrastructures, basic research
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of world grain, excellent industries in air and space, health, agriculture, digital, nuclear energy which is the largest independent in europe, and thanks to agriculture, we have total food self- sufficiency. but these assets are sources of groat's only if we know how to multiply them to research and innovation. -- sources of growth. we must remain a source of production and work which is our real well. we think that too often, we forgot that. we forgot that reality. any well, before you can and redistributed, must be produced. friends in the past was not interested in redistributing. it is a considerable subject, but it seems to us that france
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for got too often how to produce wealth. if you do not produce well, you can not distributed or even redistributive. the only way you can take advantage of globalization and not be buffeted by it is innovation, research, investment. you can see what is happening in greece. reduction of expenditures is not enough to overcome the crisis. in order to overcome the crisis, you need to reduce expenditures and increase grow. there is no better path to increase growth and innovation, research, an investment. as soon as we announce investing for the future, we realized that the task was very difficult. properties have been defined by the commission.
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i will not go into details on these priorities. you know them. a year and a half after launching this program, i wanted to take stock with you on how we have used the 35 billion for investing in the future. the general commissioner to the investment worked day and night. we can tell you that before the end of the year, at of 35 billion euros, 20 of bill in have already been committed to finance research projects. before answering your questions, perhaps i can already tell you how this investment program is organized and will organize france for tomorrow. first, we had a method that we devised with the prime minister. this method can be summarized in two words, selection and excellence. i know that these are not easy words, but we insisted in
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avoiding -- this would not have created the means for the growth that we needed. nothing would have been worse than being spread all over the place and being inefficient. so we decided to use international juries and create development centers in our country and around the idea of excellence. this really created enthusiasm on researchers and on tourist -- on carper norris -- entrepreneurs. isn't proportion with the funds we are proposing. the second innovation, the administration is not only selecting the projects. the state is an investor.
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that is to say that we wanted to limit subsidies in order to privilege equity. when there are subsidies, they also come with royalties for success. the administration takes a risk with the research stakeholders, but every time it is possible, the administration wants to also share in the benefit. the third was the multiplier effect. we hope that the public money will turn into 65 billion. i have heard the criticism. i have been criticized, and as usual, you can find some truth and criticism. we have been too selective, perhaps, but we preferred to be selected to not being selective, which was the case so much in our country in the past, which
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was a waste, one would say. a cumbersome procedure? it is true, but we did not want the funds to go straight to the agencies. we talked about that with some industries, so they would not be tempted to use these funds for current expenditures or to spend it for their pet projects, projects that had in their drawers for years and years. we really wanted these projects to come from researchers, an entrepreneurs, to have the maximum chance for success. we decided to earmark 22 billion for research in universities. this on top of the campus plan, and increase of 20% of university budgets from 2007. all of this is considerable. already we have selected 100
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laboratories of excellence projects, which will be given about 3 billion euros. that answers an accusation on the fact that in the past we have always centralized projects. in the documents that you have been given, i don't know if you have already read them -- perhaps you will see the map of france. these 100 projects of laboratories of excellence are spread all over the country. banks to the capital they will receive, these researchers for the first time will no stability over the next 10 years. 52 equivalents of excellence which will give two or laboratory is the possibility of being in the front of world experience. what we want is real innovation.
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the institutes of technological research will receive 2 billion euros. they will gather in a public- private partnership on a unique campus the best teams for training, research and development. we want to keep and develop our industry, put our industry on the front of innovation. six institutes have been decided. these are the showcases of france. air and space, and technologies, materials, rail, it sounds like a poem, perhaps, but it is not
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only in paris or the paris region that can do this. do more projects are being studied. we did not want all projects to be selected in one center. the risk was too large that we would miss interesting initiatives. others, before the end of the year, are going to join in order to give more chances to teams that lost in the first round, and to make sure that nobody goes through the net. we emphasized health, which is part of french excellence also. 2.4 billion euros, plus 1
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billion on peripheral actions. we have chosen six university hospitals will receive 850 million euros in order to accelerate the transfer of discoveries to the patients. many french researchers were discovering new processes, but it was not our industry that was taking advantage of it. then there was a long delay before -- between the discovery and the patience. so these universities, and away, -- which are six university hospitals if you want, would also have eight national centers and 10 public health centers that will determine for the long term the factors that will deal with the disease is in order to prevent them and to cure them. now, we have noted, and we
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worked all weekend on this, that different choices that we did, following an independent jury, for got cancer, or did not deal with cancer. you go for excellence, you go for international juries. we cannot change the decision of these juries. otherwise, what use would that be? the selection process has to be respected. but we thought that it was impossible not to have hospital institutes of dealing with cancer. seeing the second stage of the cancer plan and what the national institute for cancer is doing, to make proposals on the
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, inific question of cancer order to have a dedicated university hospital center. at the beginning of july, we are going to announce the first selection of these excellent initiatives. 7.7 billion euros. the winners will be the major sites of scientific research. not all universities will be part and parcel of that, but we are going to select world-class university centers at the level of the best universities in the world. not all will be excellent level, but all universities will have follow-ups of this research. in every sector we decided to privilege the link between research and the use of research, wherever there is university research. we have to organize its use,
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simplify it, and make it more professional. we are going to create 12 companies, either regional or multi regional companies. five have been selected. other projects will improve, but in the long run, it is all over the country that we want to encourage the use of research. 900 million euros. we want to make research the most practical possible. it is an effort that has never been done until now, especially downstream when we want to create companies, we will have national funds of four hundred million euros. every university, every region must compete and use its strength. but we think that the drive towards excellence has not dealt sufficiently with education and
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training so far. it is indispensable that excellence initiatives must be forwarded. we have asked for proposals that will allow to support projects in dealing with training itself. all the peridot -- pedagogical initiatives that we want to encourage and develop, with the investing for the future program, with giving funds to 700 small and medium enterprises, with 1 billion euros we help them to reindustrialize. this is without any president to help french industry. we are investing in large industrial research projects, air and space, the car of the future, renewable energy, energy
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efficiency, waste recycling, nanotechnology is, and digital. the investment program will finance a new generation rocket. the x-4 helicopter, the new engines for airplanes of the future, using a lot less fuel. in terms of energy, the program for investing for the future will be in parallel with our energy strategy. we are going to dedicate 1 billion euros for the fourth generation reactors. we will give important means from this larger offering to invest the for the future in order to strengthen research in
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the field of nuclear safety, a field where france is the leader, and everybody knows it. we will invest in safety. this is complementary with all the stress audits that we did on our power plants, but we are putting of funds on the fourth generation of nuclear reactors and on safety processes. which also will allow us to invest 1.35 billion on renewable energy and on zero carbon production. so the program investment for the future will contribute to the financing of a pilot project of fuel storage, a project which is dear to my
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heart. more on bill sadeq, and more on renewable energy. france does not need to turn its back on at a given sector. we are working on all the sectors so that the french and french industry have energy that is competitive, at a competitive price, and so that the french can use energy at a price that preserves their purchasing power. we also support waste recycling, with an economy is that uses less raw material, thanks to the intelligence grid and the housing insulation campaign. finally, we are going to finance networks and content on networks. our ideas for the internet's very large band -- 70% of french citizen should have in 202100% should have read in 2025.
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we'll have strategic investments for data processing centers which will allow us to keep our national independence. this is a topic i am sure you will want to talk about later. ladies and gentlemen, you can see that this is a very deep political choice. we are trying to convince the french that borrowing to create growth and wealth is a choice for the future france is facing a world that is completely new. they are not here to help us. if france wants remain a grand nation and continue deserving to
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finance their social model, france must invest in diversity, health, digital industries. these are the choices that had pervaded and i am sure it could be criticized as to the method, but to encourage investment, as it has never been done in this country to be a topic of consensus for all those who are preoccupied and concerned with the general interest, which should be the major concern of all political actors. yes? >> after fukushima, you dealt with a nuclear safety. have other projects been reviewed in alternative energies? >> we have proceeded to 3.
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we have three reorientation in health and the cancer. cancer destroys too many lives. it is a disease that is it too widely spread. we want to have a world center for research in cancer. we have a lot of centers of excellence including around paris for cancer. pool our forces? compared to the work we did in the parliament, it is the pedagogical initiatives.
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all of this is good, but we thought there were new pedagogical methods in universities and if we wanted to have the best universities in the world than we should work on the campus, on the equipment, on the material. new projects coming programs, and the whole world is moving. we cannot just stay teaching methods that were there 50 years ago. what we need to is to prepare for the 21st century finally. the third element is nuclear power. france has lost a few contracts
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in terms of nuclear reactors. this is because our reactors are more expensive because they are safer. we want to invest even more in nuclear safety. people are acting me what about the moratorium on nuclear power? i find this bizarre. the moratorium is what? keep the old nuclear plants and do not do any research for the new ones? you keep the ones that are less safe and you do not do anything in terms of research for the safer ones? it makes no sense. we are investing in fourth generation reactors. in terms of renewable energy, we have massive investments.
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the prime minister and myself have announced $12 billion euro any investment for wind farms in the ocean. $12 billion euro this -- euro for solar power which has been multiplied by five times since i have become president. we think one of the most promising energy futures are energy savings, energy efficiency. this is what we are working on. if everything his composing now, let's say a lighter airplane, the electric car. will we choose hybrid or lecture? we are not choosing.
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we will invest with the private sector on a lighter vehicles, the hybrid engine, the electric engine. do you know that the french automobile fleet as the cleanest in europe? to this system. we do not want to choose what is the good energy or the less good energy. we want to invest massively in order to be there in 2020 with more renewable energy in the french energy landscape. everybody knows there's no alternative to nuclear power today. all the specialists will tell you that. we have to work on nuclear power and work on grenoble's. the last word on people who say we should abandon nuclear power are the very people who want france not to fulfill their commitments from copenhagen in terms of greenhouse gases.
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if we want to keep the nuclear power, that is because we want to remain independent, want competitive energy, and we do not want to impose the incredible increase is in the price of energy. nuclear energy does not produce greenhouse gases. it is a clean energy. we are very logical with ourselves in terms of energy investment. >> i will not choose to alaska next question. -- choose who will ask the next question. >> you gave priority for investing for the future for university research and information. what do think of this scandal on the baccalaureate? do think parents are anxious about the future and so are their children? >> the fraud about the
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baccalaureate? the minister of national education was on tv yesterday and he spoke about it. and i fully support him. if you do not mind, i would like to concentrate on investing for the future. in the framework of that, i did not talk about financing the baccalaureate. i know it is in the news and i am aware of it, but i would like to convince you for energy. what we're talking about today is very important for our country, for your children come up for yourself for the next 20 years. i know that the news is all consuming and it is fascinating, but it disappears. investing for the future 20 years from now will still take
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advantage of it. the question is will france be stronger after the crisis or less strong? can we altogether from the consequences of the failures of the past? we are all responsible. can we base the future or did we fail and passed to many taxes in france that destroys initiative? too much public expenditure, not enough investment. all of the sectors are concerned. what are factories moving abroad? our taxes are too heavy, we are not competitive enough. we want our universities to be autonomous, but if you do not give them the means, it is useless. autonomy is not an end in its self, but it is a means to an end. i am very happy that they have made a huge effort for
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universities without any precedents in the republic. it is a chance, to me, because i am so satisfied to see that the university world, which was frozen for so long, to see investments in the future, to seize upon the reform of universities in order to compete and prose projects in all universities, large, small, and could we keep going down and in the rankings? is it acceptable that our students would go to the elite schools, turned their backs and universities, and our best friends would want their kids to solid studies and would send them abroad. this is as important as fraud in the baccalaureate. i understand it is a problem, but the response given was good.
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there was no good solution, and he tried to choose the least bad solution to preserve the republic and equity. there is no good answer. if people have already read text of the exam, people who have succeeded are unhappy. if you cancel out the exam, people will succeed. why cancel this one? i think his solution is the best of all of those. i would like to come back for investing on the future and research. >> mr. president, in terms of the industry, production is inferior to the level before the crisis and our trade deficit is huge. compared to the long-term your talking about, you think we need
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short-term measures to preserve employment in france? >> i think we have already taken these measures, even if it was not truly understood at the time. we did away with it to professional tax to preserve our factories in france. people who were keeping the factories in france were rewarded by a heavy professional tax that only existed in france and nowhere else in europe. you own a company. you on a factory. if you stay in france, you will be heavily taxed. if you move your factory somewhere else, you will no longer be taxed. that was a measure that we took. 6 billion euro left for the treasury. the research tax credit, over 4 billion euro. the tax cut is the most favorable in the world. why have we lost market share?
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you are right to mention that. first of all, we have more competitors, they are better, and lettis admitted. on the other hand, we did not invest in us and we are not competitive. that is the reason and that is why we did away with the professional tax. that is why we have the research tax credit so companies become more competitive and that we regain market share. the problem is when we are busy in the 35-hour week, others worked concentrating on improving education, manufacturing, and that is what we got backwards. that started back in 2000. what are we doing? investing for the future for the next 20 years and the entire policy that we decided to set up, but investing in nuclear power is good for french
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industries. the decision taken by our german friends means 40-45 billion euro they will need in order to replace that energy. anyway, we cannot go on like this. we cannot keep on ignoring the rest of the world. the question is if we are to prepare france for the challenges of the 21st century and also to keep on financing our social models. today, you see the questions that are being posed. there are of course questions about that, but in order to reimburse the debt coming you need the savings and growth. the interest of the debt is over 40 billion euro per year. every year. this will not stop us in the presidential election in 2012. this is a topic that every french citizen must deal with. i was not elected so that france
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can go to the tribulations of a greece, portugal, or ireland. the time to talk is over. we have to act. this is the reality of today's world. nobody can do without it. there are too many current expenditures, but too many public expenditures, too many public jobs, not enough research, not enough innovation, and a promise you that this is not a question of left or right, minority or majority, but the question of general interest. there is no other choice. this is the choice we all have to make because it is the path of that all successful countries have chosen. in france decides not to take that path, they will pay with more unemployment, more factories going abroad, and with less purchasing power.
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we will not be able to finance our social model anymore. >> when we were choosing to work only 35 hours per week, our german neighbors were turret -- virtues and to invest. today they have less unemployed, a smaller deficit, and more work. here we are. our great friends, just like our portuguese friends and irish friends are paying dearly, and especially in greece. the negligence of proceeding governments that did not want to see that when you are making efforts in time that you avoid disaster. that is the situation right now. it is not by chance, you see. france did not have to go through that because our ranking has been preserved and we can still borrow at good rates. two years ago, greece had to
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borrow 30%. france bars around 3%. those who want to go back on my decision to not replace civil servants one or -- who are retiring, the golden rule that we will propose a balanced budget in terms, if you do not want to do that, the deficits will explode in france will not be able to finance its debt. it is on a question of politics, left and right. it is a question of good sense and general interest. especially if you want to preserve our social model. we do not want to touch it. we want to preserve it. >> first, will there might be a
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particular method to assess the return on investment for the administration? because of all of the european problems, it is essential for france to have a finance minister. when will you name a new minister if met them -- madam lagarde is appointed? >> you went north and south. what a master you are. congratulations. every year, we want to assess publicly the rhythm of the great borrowing. we want to see with the great project are that have been retained and see what the results are of the projects that we have retained. every year. of course, there will be a press
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conference, but there will be parliamentary debates so that the parliament is associated. a 35 billion euro is a huge sum. it is normal that the method be specific. it is normal that there is an assessment. of course, how do you assess the invitation to the university and realize that our universities were the only in the world not to be autonomous and not to have any capital. what do you do with capitals in universities? you can invest, guarantee loans, or have a real autonomy, which was not the case until now. one wonders whether university
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professors find the strength to succeed without any autonomy whatsoever. total transparency and total transparency on the results including royalties and of course all of the failures. as to the rest, i will wait for madam lagarde to be chosen in the then we will decide on the consequences that we must draw. there is no question. it seems to me there is a minimum of decency for directors for the imf. we would act as if they have
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already decided. up until the last moment, we will respect the decision and wait. >> mr. president, you were talking about investing for the future. i have two questions. first, when you compare our trade as it to germany, you see that they haven't invested in -- they have invested in the industrial sector. my first question is the following. how do you see france 10 or 20 years from now? what will be the strength of france 20 years from now? do you think that investing for the future will solve the trade deficit, the chronic trade deficit of france? >> we have to choose. we cannot reach a global level
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in all sectors. this is a problem when you want to invest for the future. the french tradition is that we take a quality. we would have divided the 35 billion euro and by regions and each region would have had exactly the same. we did not want to do that. if you take the example of industry, we have selected 10 different industrial colors -- pillars. energy i spoke about. you cannot conceive of a stronger economy 20 years from now, especially in a country that has no fossil fuels without a very, very powerful
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pulse. our german friends are facing this now. health is a major industry. france has a system of health coverage that is unlike any other system in the world. it is not only to pay royalties to american labs, which are of course excellent, but we would have a system that protects the health of french citizens which would reimburse the research efforts by making large foreign labs rich. it is a huge subject for us. there is no saving possible, no economy possible, if we do not keep the transportation industry. airplanes, rail, automobiles. the experience in the world shows that just for the
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automobiles, it is 10% of our working population. we think that our industry along cannot work on the plane of the future, a car of the future, or the ship of the future. if i were to take another subject, look at textiles. it will remain a french reality, but more in a niche down on a whole scale industry such as we had in the 19th century. i could take other examples. communications. major,y's world, it is a major subject. the large communication groups in the world are english- speaking. if you're looking at french groups, if you look at their size in the world, it is not yet
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there. when they do not have television, they are absent in other sectors. the investment that we want to make in the digital industry is very important. clearly, it is not up to me or up to the prime minister to decide 25 years from now where we will be. the political commitment that we are taking today is to make choices. we cannot do everything. look at the shipyards, for instance. the prime minister and i really think it's special for different reasons. i'm sure that in the leisurely society of the 21st century but cruise liners for the new generation have a great future. in france, for years and years, we have been building fantastic ships.
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if we had not taken 30% of the capital from the shipyards, it would have disappeared. one century of skill, of know- how, would have disappeared to make the wrong decision. it is not a secret to say that i did not like the decision taken in 2002 to abandon shipping. i think it was a mistake. that does not mean that i am right, but i think it was a mistake to turn our back on the chemical industry. i know the problems of the chemical industry, but can you imagine a large economy without chemistry? is a the types of questions, but at the same time, if siemens had bought alston, that is a remarkable company. what would have happened to the french high-speed train today? where would it be? a certain number of sectors,
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just, to say, health, we know we will have to spend more because treatments are more expensive, because science has made progress, because people are less and less tolerance of pain, and this is quite normal. at the same time, do you think that every city can have a cancer center? a team that does research is on every corner? do think that we'd need to pull them together just around paris where there were three of liver transplant centers. these are extremely sophisticated techniques. do you not think we should pull them together and give them the best team to be able to exist in a world level? that is what we're building right now. we are not alone to make these choices. we are talking to professionals, to the industry about all these
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choices. we do not know everything. choices, excellence, international, assessments. this is the policy that i want to change. even if i cannot tell you what will be the major sectors of the french economy in 20 years. >> mr. president, you said you were not elected so that france would know the jubilations of greece. i know you are working hard with your partners on a solution to the financial problems of greece. is it true that the french treasury and french banks proposed a plan in order to reinvest 70% of the greek debt in new borrowing, new loans over 30 years? the other 30% would be placed in the zero-coupon notes. is that true?
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do you think this proposal could be adopted by our partners? >> the imf -- the french finance minister is working on that. of last week, but the week before, with chancellor merkel, we decided to launch the basis of a compromise on the voluntary participation of the private sector in the greek tragedy. we committed ourselves to go to the concrete realization and the principle of the voluntary participation of the private sector. why? the fed is not voluntary, it would have been perceived as a default. it was a huge risk of disaster, so we worked very hard and the finance minister worked very hard with the banks and
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companies. insurance companies, as well, about what could be a voluntary participation of the private sector and we concluded that by spreading the loans over 30 years, by bringing them to the level of european loans, plus an index and premium on growth, there would be a system that each country could probably find at least interesting, and the idea is that we will not abandon greece. we are going to defend the euro. it is in our interests and no is in our interests. those who proposed this folly that would be the exit out of the euro, it is a folly. it is something that is
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completely inane. why? i remind you that frats has a debt of 1000 500 billion euros -- 1.5 billion uro. -- euro. our debt is in euro. getting out of the euro would double or triple going out of the euro. i have not heard this argument a lot. but you have a debt in euro, it remains in euro the national currency will be devalued and your debt increases mechanically to the level of the euro.
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they are advocating doubling or tripling the level of the debt. i do not know if you understand me. the euro has made formidable progress. if we are no longer in europe, well then, it is a confrontation. who thinks alone we would be stronger to face the world with all of the competetion? no. it is inane, completely crazy. i understand the reality of politics. there are limits. the limit is responsibility.
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it is the general interest. there is a limit, but also to say we have commited ourself to reduce our debt, no one can question us on that. nobody. of course, the greek will have to make efforts, both the majority and the minority. the project made is being debated right now as one of the elements we have to be positive. we are not the alpha and the omega. >> mr. president, in your introduction, you said we underestimated the crisis. are we part of that.
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did you underestimate the crisis? perhaps this justifies the fact that we are disappointed in purchasing power. >> that was said with what -- such politeness, so i think you for being too yes, we underestimated the gravity of the crisis. why? because it caused a lot of suffering in the world and it suffered in france. do not underestimate the suffering of the french in a crisis. 500,000 unemployed people more, but less than in other countries. do not think that for one minute the crisis will have gone through was a crisis just like the others. that is not true.
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why? because for the first time in the history of the world, we have known a crisis that was touching at the same time all sectors in every region in the world. this was including the 1929 crisis. we have had the asian crisis, advanced crisis, latin american crisis. this one? it had absolutely every single region in the world. everywhere you looked. it was collapsing. we became very close to a catastrophe by promising that the french favors not spending 1 cent of taxpayer money to preserve taxpayers spending. we kept our word.
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the world kick -- this came very close to the others. this could cause, in the future, a return, maybe not exactly the same, but a return to the same type of situation. people and disappointed about the purchasing power. i do not remember having seen one government were the citizens to thank the government for their purchasing power and for their efforts. in terms of purchasing power, my government, despite the ones before, lever quite be able to convince, but remember that they're professionals at this.
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what do the independent ones tell you? even in the heart of the crisis in 2009, the french purchasing power programs -- am i wrong? yes or no? >> that was a comment. i was talking about indices. purchasing power went up a. the french cannot believe that, and i understand that. if the indices were saying the opposite, you would have started you're saying -- started your question by saying, "purchasing power has gone down. what would you do to improve it ?"
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you said there's a problem of trust towards you come as a united, at first and then you went to the fact. you have to tell the french that some european countries have decreased public service salaries by 15%, pensions by 15% and we did not want to do that. some european countries decrees that the allocation for handicapped adults. we increased hours by 25% in some european countries they decreased by 25% scholarships universities. this is just across the water there. we did not do that, because we
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are increasing our answer to the crisis which is to create some savings and invest. >> mr. president, what are you investing for in your future yourself? some have said you have changed your own style. are you thinking about 2012? area sincerely thinking about your candidacy for reelection? >> i would have never thought about that myself, but let me tell you about this. let's be serious.
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2012 is next year. to say we are not thinking about god, no one would believe me. i am the president of the republic. i have a responsibility. i have duties, the duties are mandated. i cannot do as if they were not. politicians do not have the same duty, so i am the president of france. i am the president of the g-8 and the g-20. i cannot afford that. before even thinking about another term, i have to think
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about finishing this one. the french gave me five years. i have already done four. less than one year to go. it is my duty. i have no choice. i have the duties, obligations, an agenda, responsibilities. i have to be accountable, i have to show results. i have a team with the prime minister that i have to manager. i have to make decisions every day. i cannot think about anything else. -- it is not a formula, or should i say, is it a reality. i feel that every day. every day i have to make decisions with the government, with the prime minister, difficult decisions.
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of course, the task is very complicated, but it has to be done. there is no choice. if we do not do that, if i do not, who will? disease, out of this this habitual disease consisting of thinking of what you're going to do when you have not even finished what i have to do and being accountable about it. i will not budge from that conviction because it is my duty all through 2011, as i said in my new year's wish, that there is no other choice, believe you me. >> are you going to address the
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question raised by economists that in order to preserve the future of companies, of businesses, that you have to decrease social protections which weigh heavily on businesses? will you look at financing social protection before the end of 2012? >> we will not have any changes on social protection beyond the changing of dependencies. everything that we did to be more competitive, at the same time, you propose stability with a new project every day, a new tax every day, any change.
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private companies, businesses, in order to be competitive need stability, but do think the question of financing our social protection is on the table? of course it will be on the table. how should we do this? how should our imports affect our social protection? how should we lighten up the cost of work so that it is not scaring away employment? these are very important questions it would create instability today where we need stability. i am not closing the door, but i
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am telling you where we are right now. it is time for all of these to be thought of in a european dimension. everything is not reduced to a french-french debate, especially when we talk about taxes. let's look at what the others are doing. let's imagine we could do together. there is the extraordinarily important question about our partnership with germany, the strengthening of these two economies, france and germany, because the disparities within europe are a problem. the more we have to harmonize -- we will talk about that later. >> another question.
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back to the debt and deficit, given our deficit, what is the level, you think, will be a problem and when we will have a hard time finding the resources in order to maintain today's growth or hope for better growth in the future? >> for us, the point of no return, if you will come is the level of the deficit under which the debt of france decreases. you do not have to be an economist. you know that around 3% of the deficit, given the progress of growth, the weight of the debt decreases. that is the point, that is the tipping point. you do not need to have 150 criteria. above 3 an%, the debt increases
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relative to national wealth. little by little, the death of the country increases. and we have taken commitments in order to meet 3% in 2013. for -- it is also good sense and there is a general interest that we cannot keep on spending more than what we are. in 2009, we lost 22% of tax receipts. it is normal to have a deficit, but when growth comes back from you have to think about it is
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not because of mr. sarkozy or because madam lagarde. it is in the national interest, that is why. >> does this satisfy the criteria you mentioned in your speak? -- speech? >> i can imagine their proposals will be explained and we will talk about them when they are developed. >> to have dealt with local
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actors. that is the first. what are your judgments about the regions, on the left, of france? >> dealing with local actors, not really. i was very impressed. i did not expect such a festival of innovation. even small teams sometimes that look like losers on paper were retained. this happened outside the administration. then set by their proposals and they won. to me, it was a huge breath of
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fresh air in france where all the sudden the different levels of the hierarchy were no longer an obstacle, but you could go around them. besides, in terms of the decentralization, the entire reform that we have started, and this is the first stage and i am sure that we need more later on, but municipalities, the departments, regions, states, europe. we have too many layers. we cannot go on like this. this is not decentralization. this is a different layers of cakes that are heavy and need to be financed. this is why we might have territorial reform that would bring the department and the region together with the same
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actors. today, in many regions, the department does not talk to the regions. we have 20 billion, and spending in the same sector within the department and the region. i will cover that later on. last question. >> bloomberg news. you were saying that the state was mobilizing to invest in the future. do you think that businesses that are paying really high wages, like several million euro, are not really working for the future? do you intend to tax those businesses? second question is about libya. are there any discussions in order to get mr. khaddafi outside of the country?
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do you fear that some of your allies might decide to leave the alliance? >> i do not think it is very high wages that would prevent investing in the enterprise. sometimes, one wonders if some leaders and businesses think they are living in the same world as the one that we live in. frankly, it is true. you can ask the question. i mean, one wonders. some banks that were in a very difficult situation and made it. you see incredible bonuses. it is not questioning my investment, but it is shocking. for someone who discovers a new process, who creates an invention, who starts a business from scratch, who develops a project, who earns a lot of
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money because he himself invested his own money, his own life, the reward is there. so much the better. look at what he brought to the u.s. formidable, and credible. because of the windfall, all of a sudden, on 25% compensation increase. his company was just in a dire situation. i am shocked. sometimes i wonder what they are thinking. they have made proposals and we support them. i would like for a little bit more common sense to come back so that the government would not have to react every time there is a lot. this is not the best solution. i recognize that. if we have more common sense and
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if people could understand. i must tell you the truth. i have not understood at all the violent reaction but by the president of the chamber of commerce as to the bonuses. how can you tell wage earners, "we have a crisis, tighten your belt," and when there is a recovery, "shut up." it is shocking. i am not saying that the project cannot be approved or read discussed, of course. but why such a parental opposition from business? it makes no sense. if there is money that you can give to the shareholders because you made huge profits, perhaps it can give some to the wage earners and employees. perhaps they contribute to the fact that they made more profit.
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one thinks sometimes that the simplest things do not show. the government is completely determined, if the company gives more dividend or makes more profit, it is normal that the employees could be rewarded for it. not only the shareholders, but the employees. employees count. as to libya, that is another topic. all i can say is i was rather shocked to hear about the french military investment. i will remind you that last year france had invested $18 billion euro in military equipment and there has been a fallout of $16 billion euro in military research. i pay all mosh to soldiers who
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are doing an incredible job. -- i pay homage to all of the soldiers. mr. khaddafi knows what he needs to do. after 44 years of dictatorship, needs to stop. he needs to leave power. he needs to leave the libyans to envision a democratic future. very last question. >> mr. president, you keep calling germany, as an example, that day are more diverse, especially with the state of nuclear power. when germany decides not to completely it leave nuclear power 10 years from now, on greece, the libyans, the economic results. do you think we not have a great problems since the franc-german is supposed to be in the lead?
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>> we are the two leading engines. we had 1% growth. of course germany has higher growth, but to talk about i divergence, france would be in recession and germany in growth. we have strong growth, but it is true that we have diverged on different topics. you have to understand that we should renounce nuclear power because they renounced it? as a french president, i should turn my back on all of these people because the choice of nuclear power was confirmed and it is an honor for the french? number two, should we have not gone into libya because our
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german friends cooper dissipated in the summit did not want to be there? what would have been the ambiance of the press conference? they would have said that i was a follower. the choice between diverging and being a follower. that we choose the third path, the french past, an independent country that makes its own choices. it tries to gather around its european partners. my role with the government is to defend the superior interests of the nation which is to have an energy that can guarantee our independence and is superior interest of the nation for france to be faithful to its history and its message. and gauzy -- benghazi was going to be slaughtered.
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thanks to the french, it was saved. it seems to me the justification for investment is because we do not agree on everything that europe is based on compromise. it is not simple, but there is no other choice. believe you me, i prefer this to what preceding generations knew. preceding generations different end. it was wartime. europe means peace. thank you. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011]
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>> sunday, senator rand paul talks about the debate over raising the debt ceiling, spending issues, and entitlement programs. that is at 10:00 a.m. and 6:00 p.m. eastern here on c-span. >> tomorrow on "washington journal," a look at the latest developments in congress and the 2012 presidential campaign. also a discussion on what is
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happening in egypt and the middle east. later, we will talk about the book "next generation." that is at 7:00 a.m. eastern, here on c-span. >> mission control houston. >> nasa is on schedule for the final mission of the space shuttle program this friday. look at -- look back at the shuttle program 30 years ago and explore what is ahead for nasa online at the c-span video library. continues. >> we are joined by redi, the future of time geithner.
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>> this was word secretary geithner has discussed leaving his post with some officials in the administration. it's not clear when he would do that but he is saying he wants totay for the foreseeable future, which, of course, could mean anything but he has said to have lasted three years in this job and wants to, perhaps, move on out of government. he is a been through the financial crisis, through financial regulation, through this weak economic recovery and he may think it's time to move on. also, eats got some family issues and so will be moving, will be traveling back and forth from new york for the foreseeable future. how long he will last, he will probably stay at least through the debt ceiling debate through the next month but whether he lasts longer is going to be up to him and president obama. >> so as far as your paper this morning had a -- looking at possible replacements should this event happen, and some of the names are somewhat familiar as far as their -- it's roger
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altm, the investment banker, former deputy treasury secretary. erskine bowles, bill daily the warehouse chief of staff currently also jacob lou and janet yellen, it all names that we have seen in various circles when it comes to economics. >> exactly. names we have heard overthe last two decades when it comes economic policy making and that is really just under scores how important ts role is now and how you can't really have somebody come in who is fresh on the job. they need to have some understanding of the debates that have gone on, at least over the last three or four years relating to the financial crisis, a big job of the treasury secretary will be implementing the new financial regulation laws and also, just figuring out how to get this economy moving forward in a more susta sustainablend stronger direction. because it's not happening. >> time geithner says two roles,
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selling of the policy and crafting of the policy and he said at least one of his preferences was the crafting of the policy. >> exactly. secretary geithner started out his time in government as a staff member of the treasury department, not a political appointee. he moved up through the department and really gained his reputation from working on international issues at treasury and was kind of a behind-the-scenes individual for much of that time and then moved up into senior roles at treasury and worked at the federal reserve bank of new york, which is quite powerful, not as high-profile profile as the fed chairman in washington. he likes to stay behind the scenes. whoever is in this job must be somebody who cans sell the administration's economy policy to congress and to the public because this is a time where there is so much uncertainty, more than usual about the state of the economy that they need
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somebody who can really handle the internal and the external functions. >> another topic: what is the likelihood august 2nd will come and go and some type of debt ceiling agreement will be reached? >> there is certainly a chance of that. the administration and congress are right now hoping that they can come upith a package within the in connection two to three weeks in terms of an agreement so that by late july, they can go and vote on some kind of a deal to raise the federal debt ceiling. august 2nd is this deadline at which the u.s. is expected to run out ofmoney. there is probably some, a little bit of wiggle room there. the key threshold will be how they react in late july when they see whatever progress is on this, in dealing with this problem and if very little progress has been mae, you are going to see fincial markets react, intest rais rates go up for government debt, going to raise mortgages, car loans, all sorts of other loans for
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consumers and businesses and this may force a faster reaction by august 2nd once you see a reaction in financial markets. >> does history teach us anything about what happens if these deadline are missed. >> at the end of september in 2008 when we had an unusual crisis, a financial crisis coming up with th tarp program, $700,000,000,000 was an on-the-fly decision to shape it. there wasn't that much preparation for it. but once this plan was put forward and famed initially in a vote in the house, you saw a very, very large drop in the stock market, and that is something that's weighing on a lot of lawmakers right now because there is no question once financial markets doubt the likelihood of the u.s. raising the federal debt ceiling, there will be a sharp and fierce reaction in financial markets not just here but around the world. because this is such an unthinkable concept, that's why people start using terms like
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disaster and catastrow fee when it comes to finance because the u.s. has always been recognized as the safe haven around the world in terms of money, u.s. treasu ree -- trees reez . if you challenge that assumption, that is likely to create a mass panic in the bond markets, stock markets and just about every other part of the economy. >> sudeep reddy, if you want to ask him questions, 620624-1115 for republicans. 202-604-0644 for independent. if you want to send us an e-mail, you can send us a tweet off of c-span, wj. the papers talked about this morning, discussions about what to do as far as revenue raising, discussions about what to do as far as
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cutting, which one of those arguments are winning out these days on capitol hill? >> so far it seems like cutting is winning out. the democrats and republicans are at a bit of an impasse right now. democrats wants to raise revenue in some way, whether it's raising taxes through tax rates. some people want that, more want to raise revenue by cutting tax breaks, whether it's for businesses or higher income consumers. republicans have been on a very clear path of forcing budget cuts in a number of areas of government and they seem to be winning is the political debate right now just because the weakness in the economy is leaving a lot of people to be worried about tax cuts. but that can certainly change. both sides, as we saw in the past week, have really staked out positions now to appeal to their political bases, and democrats, with president obama coming out with his presence conference was bringing back the tax cuts for mil kwlonairs and
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billionairs as he puts it and thetyonairs and billionairs as he puts it and thet and republicans are saying that those aren't the big issues here, particularly with some of these tax brakes and are focusing on trying to cut some bigger programs and, of course, they have got more on the line politically in terms of what they have put up. past republicans have proposed some pretty sharp cuts to the medicaid -- the medicare program in tms of its trajectory. >> as far as the president talking about these things in his speech earlier, he phrased it in a certain way. how is it that he framed it. >> the message from the president is that we have to come up with some kind of a solution, and he was trying to be what's often called here, the adult in the room, by criticizing people from his own party and republicans for not moving quickly enough or sticking to these political positions on either side, and of course he probably did some of that, himself. but what he is trying to do is put some more pressure on and he certainly did that with the
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senate and the senate cancelling its recess for next week so that it can be here and work on that. and he's also trying to push this politically to raids the stakes a little bit. this has been more of a behind-the-scenes debate for a lot of the last few months. he is trying to bring the public into it because the clock is on and counting down. we are a month away now from that deadline and he doesn't want to be in a position where he actually has to deal with this in a crisis because there is no doubt if you go into the beginnings of a financial crisis, this is going to be more difficult politically and cost more economicly for the u.s. government and for taxpayers and for consumers generally. and so that's really something as a president you don't want to have to confront. >> our first calm this morning comes from quincy, massachusetts, jerry on or democrats line, with sudeep reddi. go ahead caller: can you say glass-st
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testament gall? do you know about glass-steigal? >> i do sglfs that was enacted in 1933 by republicans, by the way. it was supported by f.d.r. endorsed it. that separated the banks and it was repealed in 1999. we have had 40 years, over 40 years of deregulation. and deregulation under carter and rean and it's allowed argued crime into our banking institutions. that was reported yesterday by one of your callers on c-span. >> that's the problem. with glass stegall, we could rekeep $15 trillion. why should we pay for the gambling debts of wall street and london? why don't you report about this? >> thank you for the call. i think we are seeing some
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reporting on this. not necessarily on glass-stegall and the late 90s and the act that overturned it. we are seeing a fair amount of problem now on the derivatives issue which is actually at the core of this, of financial regulation now and the risks that are involved with some of these newer financial products that have been generated over the past decade since the laws have changed and derivatives in particular are kind of an insurance product that shadow stock packet, some people say, of insurance on other types of assets and those are -- they had been largely unregulated. the financial regulation law that passed last year is forcing some regulation of derivatives in particular and some of the other issues that you raised, those are coming up now. but there doesn't seem to be quite yet an appetite for the full division that was brought up in the aftermath of the great
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depression and we may have to see whether there is another financial crisis or if the regulations can deal well that if we see political will to deal with this in a larger and more comprehensive manner. >> off of twitter this morning, he says what we have is a credit crunch, governments solve with inflation, there are issues with controls and trade-offs. can you expand on what he said and ke it english for people who might not understand it? >> absolutely. the core issue here is in the aftermath of a financial crisis, the people who lend in the economy, banks, credit unions, they tend to hold back a bit. in part because of concern about the state of the economy, whether it going to actually move on this trajectory that helps them but also because consumers are cutting back, increasingly defaulting on the loans when unemployment is beyond 9%. you are seeing that quite a bit more wth people just not being able to pay their bills. as a result of these overall economic conditions, credit gets constrained.
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so it's harder to get home loans, harder to get car loans, harder to get business loans and until you have banks loosening up tose requirements and they have been doing that. going into the crisis, they were quite loose in the depths defendant financial creases in '08 and '09. credit became extremely tight. it's starting to come off. but after a depression like this, we have seen this all over the world throughout history, credit is just very hard to come by, ad it is something that only heals with time. >> there is a headline in the washington post that reflects on the topic, says key indicate orders show confidence in u.s. credit. would you agrewith that assessment? >> some indicators now that are actually showing that the disney is maybe moving toward a better path. we have seen over the last three months a lot more fear about the economy's trajectory in the aftermath of the japanese tsunami and what that did to the apply chains around the world and the sharp jump in gasoline prices to about $4 a gallon.
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weak consumer confidence and business confidence and slowed down the path we were on. economic output has been slowing considerably in the last few months down to a pace of about 2%. in normal times, you need something around 3% in terms of economic growth. there is hope now that maybe that was a soft patch. you have seen oil prices come back somewhat, gas prices have been dropping in the last few weeks. and all of that is helpful to getting the economy back on track. we are going to really see over the next week whether this was a true temporary slowdown in something that we've already moved beyond with some job numbers next friday for the -- from the u.s. government to show how payrolls ha done and the month of july is going to be irly critical to seeing how business confidence and consumer confidence have responded as well. >> your colleague at the wall street journal justin lee hart
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said in may, the economy added jobs and unemployment gains have retained lack laughter. next friday's monthly report from the labor department will show a gain of 94,000 jobs in june leaving the unemployment rate at 9.1%. what can you add to that? >> that would be a fairly disappointing figure if it turns out to be the indicates. the forecast right now, some people are looking at forecast of job growth around 100,000 to 150,000 for the month of june. if that turns out to be the case it's at least better than what we had, but we really need to be seeing some consistent job growth of 200,000, 300,000 jobs a month for a very long time before there is going to be faith tha the job market is recovering and something that will -- that's what will bring the unemployment rate down, whh has been, of course, around 9.9%. >> greensboro, north carolina
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caller: good morning. thank you. my question is: since 1980, the republicans have implemented a physical policy of trickle-down economics, yet the american worker has not benefitted for it. adjusted for inflation, the american salary of the middle class and poor has dropped by $400 and the vast majority of the benefits from the tax cuts were given to the top 5% of wage earners. my question to you is: why isn't the republican party going after the population that benefitted most from these tax cuts to get some of that money back? and why is it they are only focusing and it seems to be they want to burden the responsibility of paying our national debt on the middle class? the middle class has increased
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its productivity by 65.5%. since 1989, their wages have dropped. thank you. >> the caller is correct that over the last really three to four decades, we have seen a shift in terms of where income growth goes and where gains in the economy go. and that is largely t the highest incom earners, the very small slice at the top. and that's something that's concerned a lot of economists in particular because it can create some long runs, instability in the economy, and why republicans have, in particular, focused on this, i think it's just become an article of faith among the g.o.p. that you don't want t cut taxes -- i'm sorry. you don't want to raise taxes on anyone, and so they are focusing mostly on cutting taxes wherever thing. i guess if you don't see the benefits just yet, two people across the spectrum, they are
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hope is you will over time see that. the evidence doesn't show it from the last couple of decades that that would happen in terms of spreading out the gains from economic growth. i think you are starting to see particularly among some tea party members, some concern about this divide, particularly through populist members of the republican party of raising this concern about whether goethe and the benefits of the american economy are actually being spread broadly around and you are going to see that probably in this next eection in terms trade policy, in terms of overall economic growth and not necessarily in tax policy but certainly in some other areas. >> john, republican line from palm coast, florida. caller yes. i had a couple of comments made -- to make about the economy. and it's amazing. there are some very obvious measures to restore america.
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first, we are blessed with natural alth. oil offshore, nw have better processes that ensure safety. of course, they need government oversight but look how much the government delayed the oil spill that made the news 24/7 recently. you know, as far as taking, i think there was about four weeks, we had offers from all over the world that knew how to take care of that. so they need to be investigated. we have statistics. we have enough natural gas that we could run all vehicles. it used to be a simple
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procedure, to convert vehicles, at least government vehicles, you know,nd enough to last sixty years. >> leave it there. >> we do certainly have a lot of natural resources in the country in terms of natural gas. a lot of that is being tapped is one reason why natural gas prices have remained fairly -- not depressed but lower than they had been during the period earlier in the decade. and so that is actually being used quite a bit. you see this in states along the coast. you see this in texasn particular, with natural gas companies producing quite a bit of income. helping those workers in those states and government coffers and states with natural resources are doing somewhat better than most states that don't in terms of tax revenue and they are in the position of their own government. i am not sure, though, that we have enough natural resources to
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drive an overall economic growth story here because the rest is -- we are a large country and have a lot of consumers and a lot of that is going to be coming from abroad. >> that's why there is so much attention on some of these overseas producers. i see some, particularly among democrats and president obama, try to focus more on increasing some of those resources from oil and natural gas whether it's off-shore drilling, under constraints of regulation or expanding some of the on-shore activities that exist already. >> two headlines talk about small areas of growth i guess being reported. i will show them to you. the one from your paper says manufacturing gains stir recovery hopes. and then if you go to the pages of the washington post, it says the s & p 500 has the biggest gain in 2 years and the headline talks about that same manufacturing report.
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are those two connected? and if so, how do they connect? >> absolutely. they are connected. the manufacturing numbers, that's a figure from the institute for supply and management gathers the sentiment of purchasing managers around country. there was some fear going into friday's report that we would see a continuation of some of those, the weakening we have seen in other parts of the economy and more of a confirmation of the slowdown. instead, we saw pretty steady growth and expansion. not blockbuster by any means but certainly expansion that should provide a foundation if it were to continue for growth in the economy. the manufacturing ctor, after, of course, a very rough decade is starting to pick up again and we are seeing some expansion. some jobs are coming back. >> that's in part due to the weakness of the u.s. dollar. >> that's helping exporters here and their products abroad. that figure from the ism on
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friday really helped propel the stock market because it confirmed that what we have just come out of may have been a temporary slowdown rather than a more protracted down turn with a double-dip recessio that is what has led the stock market which had faln from the pot where it is now over the last month or so to rebound because we have seen oil prices drop. we have seen a lot of the troubles in europe get resolved, at least for the short-term, that they have been resolved and it's still a long-term problem hanging over the economy. but with the domestic situation as well, some of these are starting to offer a little bit more hope which is driving the stock market. >> stories stemming from greece, riots happening there, with the austerity problem. and do those correlate to the united states? >> they do. we saw earlier in the week the greek parli meant voted for
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cutting back for government workers, cutting pensions, doing a lot of things to rein in their budget. that was an important signal that the greeks were willing to take what was clearly politically unpopular action to get their own huse in order, and that relieved some of the concerns. now, you are actually seeing this weekend, european leaders are meeting to try to come up with what's going to be the second packageor the greece in terms of it was clear that the first one that was put together last year wasn't adequate. the greek financial situation. and the budget has consider blich, their budget cuts has sparked a downturn in their economy and so what they are trying to do now is provide some visibility to go through the next couple of years with the greek budget and all of that is really important for the u.s. because we have seen signs from the middle of 2010 to now that a problem in europe can really
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rock financial markets. in part, that's because a lot of european banks own greek government debt and if the banking system falls until one part of the world, they are so interconnected now, it tends to weigh on other parts. and it creates more of a risk of a contagion around the world in financial markets where people pull back from risk and get a little more worried about their own conditions, and that is what is usually the beginning of a financial crisis, when you have a slow panic developing and growing into something much larger, and that's where u.s. officials but mostly european officials have been worried about and focusing on is trying to prevent that kind of contagion around the world. >> are those parallels there and concerns about letting the debt ceiling come and go without doing anything about it as far as the world community is concerned? gevebybdsbo t_
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>> not necessarily right now but enact a plan right now. the cuts do not have to take place immediately, but they need to be enacted to take place within the next couple of years so that financial market investors around the world see that the u.s. will still be as a partner in the economy. host: we have about 15 minutes with our guests. caller: >> good morning to c-
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span and your guest. i notice that you talked about the economy and we know that the major problem with the u.s. economy is that we allowed companies to go offshore. we have yet to see any of those companies voluntarily bring factories back to the united states. when you talk about that is going to replace geithner, you have the list of the same type of people. he said you need somebody that has seniority and so-called knowledge. if these people have all this
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so-called knowledge, look where the u.s. economy is at. we are forgetting the other major factors that is driving our economy to this, it is a steady level but it is a low of state level. you have not mentioned the war. we have contributed so much money around the world, propping up countries, helping out countries, but there is no dividend for america. guest: on the manufacturing point, this is actually a very good one. we are seeing a degradation in confidence of american workers that the jobs will be there in the future. people have spent the last 20 or 30 years gaining skills, getting prepared for a trade. we are now seeing a lot of those jobs go abroad. as a country we have not come together to invest properly in the educational infrastructure
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that you need from the grade school level of their high schools, community colleges, and four-year colleges to provide people adequately the skills you need to compete for jobs now. that is something that is starting to see some debate, but really not enough in terms of what we need and what we need to do in this economy. there is certainly an imbalance in terms of u.s. companies going abroad and building factories and build an infrastructure and other places rather than the u.s.. in part because the growth is becoming becoming from the developing and emerging world. the broader point about leadership and the administration, i do think
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beyond the names that have been mentioned for the treasury secretary job as tim geithner leaves, there are quite a few people who could provide some of that perspective on what is needed. some of the names and have been mentioned are officials who were in the white house in the clinton administration, during a time of remarkable economic growth in terms of job growth in particular. there are some people on the list who do have a record of being helpful and productive in these kind of situations, and there are probably a lot more, whether it is business leaders are people from the public sector who could come into a position like that and demonstrate confidence. they don't necessarily have to have been in government recently to be able to do that. host: >> kathy is next on the democrat line picnics i am going to piggyback on some of those comments.
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is the problem really in the u.s. that is skilled labor force, or that corporate multinationals have gone overseas over the last 30 years to get cheaper labor, and they do not have terps coming back in? i just met a worker here who was applying for a job, applying for jobs at walmart. if you could talk about the type of jobs being created, and i want to ask about -- you can read a lot about guide their and summers and bernanke, especially in the progressive blogosphere errors being part of the problem. if you could talk about what role they played in deregulation over their history and with getting rid of glass-steagall. i believe it was summers and rubin. what does obama keep reappointing the same people who were part of the problem? host: let me factor in the story
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from bloomberg saying that former president clinton endorsed the tax holiday when it comes to taxing repatriation from foreign multinational companies. guest: the issue of what kind of jobs we need, what we have seen over the last few years in particular, as the economy weakened, the people who lost out the most are those who did not have education. if he did not have a high school or college degree, the unemployment rate has dropped 15%, sometimes 25% in some areas. that is where it is a clear sign. people with college degrees are seeing an unemployment rate of 5% or below right now. that is critical in understanding where we are at. skilled jobs can be from a number of areas, whether skills from and i t perspective, biotech jobs -- there are a lot of things the rest of the world
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just cannot produce. even u.s. companies are recognizing this as they have tried to hire in skilled manufacturing in other countries. they found that they cannot necessarily come up with the same results in china that they can produce from american workers, because american workers overall have to be more skilled and productive than most workers in the world. that is why it is obvious that a lot of cheap products come from abroad, whether china or india or any number of other places that have low-cost labor. it is obvious a lot of cheap oducts come from abroad whether it is china orndia or other places with low-cost labor. the focus on the u.s., it is widely agreed it needs to be on producing skilled workers who need to be able to beat out from around the world. on the repatriation tax holiday
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issue, the u.s. companies that have expanded overseas now have a lot of money in their overseas accounts. they have made the case to have a tax holiday to bring it back to the u.s. and invest the in u.s. jobs. is gaining some traction as an idea. one concern is that u.s. companies have quite a bit of cash on their balance sheets at home. they are not using got to go out and create new jobs as much as they could. part of it is they do not see the demand. consumers are not spending as much as they would need to suort something like that. there's a lot of cash and use right now. host: what is theate they are taxed at? guest: the highest tax rates are
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around 35%. there is dcussion of bringing them closer to 25%. the problem is tax rates are spread out so broadly among different kinds of companies. an oil company is paying a much different tax rate from a manufacturing or tech company. that is in large part because there are different tax breaks involved in each industry that affect their allotment bottom line in terms of tax costs. part of t discussion about overhauling the tax code is to figure out how to bring companies closer to a rate that is fair across the system. you hear a lot about lowering the corporate tax rate and broadening the base so that more companies are paying the tax rate and not getting around it. host: the next call is from maryland. caller: i am a co-founder of the small biotech company that has a
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lot of ph.d. chemists workingn india because of the differential in cost to the company. the supporters would not pay the greater employees' salaries when the indian chemists are just about as good. i have heard some discussion that the debt ceiling lomb maybe considered unconstitutional. it conceivable from your perspective that the obama administration could feel desperate enough to challenge the possibility and keep on spending ahead until it is resolved in court? guest: that is a great question. a recent amendment guaranteed
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federal debts and said you cannot question the validity of federal debt. that was made in regard to backing union forces fettered the confederate debt. the confederate debt was not backed by the u.s. government have today. that came up at the time for a different reason. it has, now because we have this unique system -- come up now because we have this ique system for passing budget decisions for taxes and spending and a separate track for the issues with the debt ceiling. that is why we have not heard about the debt ceiling until now. it is almost like a simple issue is resolved without formal votes. it is conceivable that in a crisis, the obama administration could decide to test this and say that is a
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literal reading of the amendment that would suggest w can go and borrow more for the country because they have passed the spending decisions that obligate us to do this. they passed a package that enacted tax breaks for american consumers and businesses. the majority went along with this. it was put into law. that is where someone should have objected to what was happening and not in the debate about the debt ceiling. wants to authorize a certain amou of taxes and spending, there is not much latitude to do with it. -- when you offer is a certain amount of taxes and spending, there is not much latitude to do with it. people run the world are puzzled because they do not understand why we have a separate track for it. when you get to a crisis, a lot
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of the damage tends to have already been done. that is in terms of the effect on the market and businesses and consumers that are already running in trouble. caller: in 2008, my husband and i lost half of our investments in the stock market. our investment manager told us to hang tough, which we did. with the debt ceiling, we decided we cannot ride this pony again and pulled out. to our surprise, our local bank manager told us we were not alone. people were pulling their money out of their savings plans and putting it in the local banks. does this speak to the
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degradation and confidence of the financial market? is this a trend you may be seeing for older people or regular investors? why are there not more incentives for savings? when i was a kid, you could bring your pennies and every week. it would seem bringing money into the local economy might help to jump-start something. thank you. guest: those are excellent point. people pulling money out of markets, that is a serious problem we he to address in terms of what happens to rank- and-fi investors who decide the system is not right for em. that removes a huge pool of capital from the money available to be it went out --
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lent out. that is a serious problem. it was considered in the late 1990's after the tet bubble. people got so excited that they invested sometimes too much. when the bubble burst, they started to pull back. you saw some improvement in confidence in financial markets. the financial crisis changed things a lot. i heard people decided they had too much risk to bear. that is a valid concern when you see so many problems out of the control of the u.s. abroad. as you are closer to retirement, you make a decision to be more conservative in your
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investments. and i think that is good to be prudent like that in terms of planning. on the issue of savings, those are good points. one of the problems we have seen is that people who have been saving in banks, there are disincentives to go and say. if people are not going to be getting money in their basic savings accounts, you will not be building the base you need when other things back up and are increasingly in doubt like socials a tree. there are a number of issues affecting this. this is so much cash flowing in financial markets around the world. depressing interest rates in the u.s. in part along with u.s. policy keeping rates low -- that is a complaint brought up quite a bit among federal economic
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policy makers there are other economic figures we will see next week. we will seek reports on the service sector and weather is improving. we should seek other data on jobs before friday. there are reports that come up to date -- two days before the jobs report. there are numbers on thursday that should give us an indication on whether employers are cutting jobs at the pace >> from today's "washington journal," a look at u.s.-afghan relations. this portion is about 30 minutes. continues. eklilwe're joined by
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hakimi, the afghan ambassador to the united states. tell us what you are doing with your country and the u.s. strategy in your country. guest: i have been here almost four months. we are working with three main subjects that are important for both countries. the first is the transition. we have agreed starting in july 2014, the afghan security forces should gradually take responsibility for security while the coalition forces gradually reduce their numbers. the second area we're working on is the reconciliation, not to bring -- how to bring those to renounce violence and have cut
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ties with al qaeda and want to accept the afghan constitution, how to bring them into our society. the third subject we're working on together is the strategic partnership document between the united states and afghanistan. it will serve as an insurance policy for the future interactions between afghanistan and the united states. host: what is your country doing currently to prepare for the pullout of the 33,000 troops by 2014? guest: we have made a plann. we have areas already identified from different parts of the country where our security forces will take full responsibility for security while the international coalition forces will gradually pulled u back.
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other elements for securing various will develop and surge. to get the heart and mind of the people, we should deliver basic services based on their needs. we should have projects in those areas. meanwhile, we should work with communities directly on things they need based on the properties that our government should deliver it to them. host: which area is the most dangerous and poses the most challenges for the security forces? guest: the seven areas are chosen carefully in different parts of the country.
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those areas are quite calm right now. there's not much challenge as far as security is concerned. we will see when we start the transition will be the other areas that should be relevant to the overall security system. we do not want to undermine the overall plan as far as the transfer of responsibilities is concerned. host: are the security forces ready to take the challenge? guest: the number and quality, we have close to 300,000 national army and national police force and intelligence services.
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we have confidence that they will deliver their responsibilities. when president obama announced the reduction of u.s. forces, that also shows that our partners have full confidence in the afghan security forces, that they are in a position to take the lead. host: will there still be u.s. troops involved in the training even after the initial surge troops leave? guest: yes, this is the plan for the training of the security forces and also to equip our security forces. it is also for sustainability purposes. this is what we're working on with the strategic partnership document to make sure that beyond 2014 we have something to
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give that assurance to our people and the countries in the region that we have a vision beyond 2014. host: our guest is with us until 9:15. if you would like to ask our guest a question, you can call on the telephone lines. you can send questions by e- mail and twitter. the strategic partnership documents, is it just about manpower? what other elements will afghanistan look to the united states to provide? guest: this is a joint vision between afghanistan and the united states that will frame the relationship between the
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countries for years to come. besides the military cooperation, we will have different areas like economic cooperation, a good governance, and regional cooperation. these are other areas will be incorporated some help in the document. host: is the document formalized or a work in process? guest: it is a work in progress. we are in the middle of the crustaceans. -- negotiations. there is no time limit for that. we all agreed it should be quality-driven and not calendar- driven. host: you talked about governance as far as the document is concerned. a hearing took place this week that featured military commanders. it also took about the report talked about the afghanistan
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government -- it also talked about the afghanistan government. i want you to get your reaction to this. >> we are working closely with the institutions of government that are emerging, seeking to create patterns of conduct, systems of accountability, the le in ways responsibili that can reduce the problems associated with corruption. it is an effort where we will partner closely with ambassador crocker in his efforts with his great civilian team. i will work closely with ambassador simon gass from nato
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and other agents -- elements in the agencies to build capacity that holds people accountable, creates systems, and provides mechanisms for predictability and accountability within the government. host: you talked about predictability and accountability. how would you respond to those statements? guest: the general mentioned the capacity. that is very important. the more capacity built within the system, the more accountable the system will be in its response. this is one of the elements our government in partnership with others is working on, to bring an accountable system that other people can have confidence in.
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it is not an easy task. it will take some time. hopeful that with the proper support we have, we will build a system that our people can rely on and we will fulfill the expectations from our coalition partners. host: the senators were talking and asking questions about corruption. how would you address those concerns? guest: corruption is unfortunately a reality. we do have dishonesty and corruption and our system. we do not think pointing fingers is the solution. the cause of the corruption is mainly already -- poverty and low salaries. it is also uncertainty about the future. this is something that leads
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people to engage in these activities. the system also gives them opportunities for corruption, unfortunately. the resources we have received for the last 10 years or so that we're so grateful for from our international partners also created opportunities for corruption. we had met there are corrections there. we should work together to find the main cause which we have identified already. we have identified the main causes. dealing with that will take some time. deal with that take some time until we have a system the will be accountable to the people and
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taxpayers that are providing assistance to our country. host: how is president karzai of directly addressing it? guest: he also admits that there is corruption, unfortunately. this is his standard i am explaining to you about working together to address the problem and get rid of it. we're working together to have unaccountable system and build the capacity to deliver. the resources we receive, if we channel goes through the afghan government, that will bring accountability and build capacity within the system that will make them be responsible for the resources we received. host: our guest is eklil hakimi,
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the afghan ambassador to the united states. he previously served as the ambassador to japan. cobblehis master's from polytechnic institute -- kabul polytechnic institute and has spent time in the united states. guest: after the civil war in afghanistan, we were forced to leave the country. i joined my family who lived in california. there i started working f. i tried to obtain a license to work as an engineer. after that, and worked in emerson company with my family. i stayed there for quite some time until late 2001 when the
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interim administration came into power. i joined them to serve my country. host: our first call is from washington, d.c. on the democrats' caller: i know this is a sensitive issue in this country. fromis america's benefit all the support, blood, and that we've given to afghanistan? could you talk about the economic cooperation side of the equation? the navy has been helping to survey the country for rare earth metals. could you talk about the specifics in terms of what the economic benefit to the united states will be?
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guest: let's talk about why the united states anengaged in afghanistan in the first place. we all felt there was a direct security threat from that part of the world. we have more than 40 other countries also supporting us as far as security is concerned. we received great support as far as development in afghanistan is concerned. we are grateful for that. we have a lot of success stories in health, education, infrastructure. when i went to kabul in late 2001, we had only 10 mobile phones. right now, we have more than 15 million mobile phones.
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the infrastructure is building roads, bridges, hydropower stations, and so on. we have elected a president. we have elected parliament. the media is a success story. there is no restriction whatsoever on media. we have more than 20 tv stations now in afghanistan. we have more than 500 newspapers. there are other radio stations. there are a lot of success stories. afghanistan has enormous resources of natural resources.
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according to the u.s. geological survey, afghanistan has mineral resources the preliminary reports indicate are worth more than $3 trillion in u.s. dollars. i am working with u.s. companies. if they want to engage and take part and benefit from those mineral resources, they are more than welcome. we have a reliable system as far as investment is concerned. we have procedures they can rely on. we also have international assistance -- systems for countries that want to
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participate with the natural resources. we have already given one of the strategic copper mine projects to one of the chinese companies. there is another huge iron ore project in the pipeline. u.s. companies are more than welcome to participate. we have a lot of oil and gas resources in different parts of the country. the tendering process will start soon on that. i am talking with different companies. -- i am talking with different companies here about if they are interested to participate. there are ways we can both benefit based on the win/win principle. host: jack is on the
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independents' line. caller: mr. ambassador, have you lived in afghanistan? guest: i grew up in afghanistan. i was educated in afghanistan. i received my master's degree in afghanistan and have worked in afghanistan. caller: what is the price of fuel in afghanistan for gas and diesel? guest: for a gallon, is the equivalent of -- is the equivalent of $1.20. caller: $1.20 a gallon? last week on c-span, a u.s. representative from ohio quoted that gasoline costs $400 a
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gallon. i am glad there is no corruption in the united states but they are paying $400 a gallon for fuel. i do not think they're buying it from afghanistan. guest: you announced me a question about how much of the gasoline price is. i gave you the answer for the cost in the afghanistan market. -- you asked me a question about how much of the gasoline prices. where they get from, i do not know. the purposes they are using the gas for, i also do not know. the price i am giving you is the price in the local markets. host: this question is from twitter about secret talks going
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on with the taliban. do you feel the taliban should be part of afghanistan going forward? guest: the reconciliation is one of the major national programs our government already initiated. we have agreed with our international partners to have this reconciliation program. our president a couple of weeks back mentioned talks with different people going on through different channels. we have a high peace council the mainly responsible for the reconciliation. they have opened to the channel of communications. when you want to reconcile with people, you have to talk to
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them and open the channels for communication. there are different channels that want to reach out to opposition forces for the success of the reconciliation program. host: what about separating the taliban and al qaeda? guest: this is an afghan national program. is supported by the international community. our partners are saying it is an afghan-led reconciliation program. the afghans should be in the driving seat. we have three principles for that. the first one is to cut ties with al qaeda. the second one is to renounce violence. the third one is that they should obey our constitution. based on these principles, they
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are more than welcome to join the political fabric. they have to meet all three. host: if they meet all three, do they get incorporated into the government? how does the corporation work? guest: not necessarily to be part of the government, but they can be an active member of society. they're welcome to have their own businesses. within the reconciliation program, there are programs to give them skills, help them find jobs, give them tools with which they can become an active member of society. there are other ways for those who want to establish a political party, they are more
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than welcome to do so. we are a free and democratic society now. those who want to work for the government based on their qualifications, they can be a part of the government. host: our guest is with us for another 15 minutes. woodstock, georgia. caller: good morning, mr. ambassador. what is the afghan government and what are the afghan people doing to eradicate the poppy fields? guest: that is an interesting question. that is a main challenge as far as the government and people are concerned. we have made a strategy with the support of our international partners about how to eradicate and get rid of the problem of poppies.
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one major point of the strategy is to support our farmers by finding an alternate of livelihood for them in order for them to secure their income. for that, we do have some success stories in parts of the country and have found saffron as an alternative livelihood. out of 34 provinces in afghanistan, 22 of them are in the government are giving them incentives, money for different projects for the reformers once they become
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part of the system to be supportive of government initiatives to get rid of the poppy. again, this is not a problem with an afghanistan. trafficking and the consumers of these drugs is something that we should all work together on, and we do, but we still expect help from the international partners to focus more on this problem. one of the resources that our opposition forces gets money from is the poppy. but the income that they get from poppy, they run the machinery to fight this war. it is very important.
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our government does have a strategy to deal with it. host: louisiana on the democrats' line. good morning. caller: good morning. i want to put you on the spot again and i want a direct answer. you have been signing the trade deals with china and other countries to export minerals. the minerals have been there long time. the russians know about them. should afghanistan be reaching out to american corporations to bring our technology there? guest: as i said, the process for the mineral resources is open for international companies to participate.
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for the particular project are referred to, are remembered -- are remember we have listed five companies, one from the united states, one from russia, and one from kazakhstani, and one from canada. they were responsible for the evaluation process. they have certain criteria. whenever a company meets the criteria, they are entitled to get that project. again, as i said before, i am marking with u.s. companies right now -- i am working with u.s. companies right now and they should come and participate. that is our hope and that is what we have created our laws based upon to diversify our
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natural resources. we want to create an environment, a competitive environment, for different companies from different parts of the world to participate and benefit from the resources that we have based on a when-when principles. -- win-win principles. host: germantown, maryland. caller: since the u.s. has been in afghanistan, the poppy crop has skyrocketed. american troops are actually guarding the poppy crops and allow the afghan people to grow it. there is one article about how the united states now, our troops, are fighting and dying as the chinese corporations can rape afghanistan and for their natural resources. you are allowing foreign powers to use this as a conduit.
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guest: again, as i have said, the competition is there. all other countries that are willing to participate in the resources that we have, they are more than welcome. people here understand the business very well. the proximity of afghanistan to other countries in the region is such that transportation costs and cost effectiveness is one of the main criteria for the business. most of the company's theire are interested, for example, indian companies are interested in taking part in other minerals because of their needs. for that,


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